UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for use of the Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-12
ADVANCE FINANCIAL BANCORP
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.10
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(2) Aggregate number of securities to which transaction applies:
1,539,251
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (set forth the amount on which the filing
fee is calculated and state how it was determined):
$26.00, the per share merger consideration
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(4) Proposed maximum aggregate value of transaction: $40,020,526
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(5) Total fee paid: $5,070.60
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[ADVANCE FINANCIAL BANCORP LETTERHEAD]
November __, 2004
Dear fellow stockholder:
We invite you to attend the Annual Meeting of Stockholders of Advance
Financial Bancorp to be held at the Wintersville office, 805 Main Street,
Wintersville, Ohio on ____________, December __, 2004 at __:__ _.m., Eastern
Time. At the Meeting, you will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Reorganization by and among Parkvale
Financial Corporation, Parkvale Savings Bank, Advance Financial Bancorp and
Advance Financial Savings Bank which provides for the merger of Advance
Financial Bancorp with a subsidiary of Parkvale Financial Corporation. You will
also be asked to vote on proposals for the election of three directors and the
ratification of independent accountants.
If the merger agreement is approved and the merger is subsequently
completed, each outstanding share of Advance Financial Bancorp ("Advance")
common stock (other than certain shares held by Parkvale or Advance) will be
converted into the right to receive $26.00 in cash, without interest.
The merger cannot be completed unless the stockholders of Advance approve
and adopt the merger agreement and the parties receive all required regulatory
approvals, among other customary conditions. Approval of the merger agreement
requires the affirmative vote of the holders of a majority of the shares of
Advance common stock outstanding and entitled to vote at the Annual Meeting at
which a quorum is present. Directors and executive officers holding
approximately ___% of Advance common stock have agreed with Parkvale Financial
Corporation to vote in favor of the adoption and approval of the merger
agreement.
Based on our reasons described herein, including the fairness opinion
issued by our financial advisor, Keefe, Bruyette & Woods, Inc., which is
attached to the proxy statement as Appendix B, your board of directors believes
that the merger agreement is fair to you and in your best interests.
Accordingly, your board of directors unanimously recommends that you vote "FOR"
approval and adoption of the merger agreement.
The accompanying document gives you detailed information about the Annual
Meeting, the merger, the merger agreement and related matters. We urge you to
read this entire document carefully, including the attached merger agreement.
It is very important that your shares be voted at the Annual Meeting,
regardless whether you plan to attend in person. To ensure that your shares are
represented on this very important matter, please take the time to vote by
completing and mailing the enclosed proxy card.
Thank you for your cooperation and your continued support of Advance and
Advance Financial Savings Bank.
Sincerely,
Stephen M. Gagliardi
President and Chief Executive Officer
ADVANCE FINANCIAL BANCORP
1015 Commerce Street
Wellsburg, West Virginia 26070
(304) 737-3531
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON December __, 2004
Notice is hereby given that the Annual Meeting of Stockholders of Advance
Financial Bancorp ("Advance") will be held at the Wintersville office, 805 Main
Street, Wintersville, Ohio on ____________, December __, 2004 at __:__ _.m.,
Eastern Time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
agreement and plan of reorganization, dated September 1, 2004, by
and among Parkvale Financial Corporation, Parkvale Savings Bank,
Advance Financial Bancorp and Advance Financial Savings Bank,
pursuant to which, among other things, (i) a newly-formed
subsidiary of Parkvale Financial Corporation will merge with and
into Advance, and (ii) upon consummation of the merger, each
outstanding share of Advance common stock (other than certain
shares held by Advance or Parkvale or shares the holders of which
have perfected dissenters rights of appraisal) will be converted
into the right to receive $26.00 in cash, without interest;
2. To elect three directors of Advance;
3. To ratify the appointment of S. R. Snodgrass as independent
accountants for the fiscal year ended June 30, 2005; and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement of the Annual
Meeting.
We have fixed the close of business on November __, 2004 as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting or any adjournment or postponement. Only holders of Advance
common stock of record at the close of business on that date will be entitled to
notice of and to vote at the Annual Meeting or any adjournment or postponement
of the Annual Meeting. A copy of the merger agreement is enclosed as Appendix A
to the accompanying proxy statement. The affirmative vote of the holders of a
majority of the shares of Advance common stock outstanding and entitled to vote
at the Annual Meeting is necessary to approve and adopt the merger agreement.
Directors and executive officers holding approximately ___% of the Advance
common stock have agreed with Parkvale Financial Corporation to vote in favor of
the adoption and approval of the merger agreement.
Your board of directors has determined that the merger agreement is fair
to and in the best interests of Advance's stockholders and unanimously
recommends that stockholders vote "FOR" approval and adoption of the merger
agreement and "FOR" approval of the other proposals being considered at the
Annual Meeting.
By Order of the Board of Directors
Florence K. McAlpine, Secretary
Wellsburg, West Virginia
November __, 2004
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IMPORTANT: Your vote is important regardless of the number of shares you own.
Whether or not you expect to attend the meeting, please sign, date and promptly
return the accompanying proxy card using the enclosed postage-prepaid envelope.
If you are a record stockholder and for any reason you should desire to revoke
your proxy, you may do so at any time before it is voted at the Annual Meeting.
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TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES
FOR THE ANNUAL MEETING.........................................................................................
SUMMARY TERM SHEET.................................................................................................
THE ANNUAL MEETING.................................................................................................
Time, Date and Place............................................................................................
Matters to be Considered........................................................................................
Shares Outstanding and Entitled to Vote; Record Date............................................................
How to Vote Your Shares.........................................................................................
Votes Required..................................................................................................
Solicitation of Proxies.........................................................................................
THE MERGER.........................................................................................................
The Parties.....................................................................................................
Acquisition Structure...........................................................................................
Merger Consideration............................................................................................
Effective Time of the Merger....................................................................................
Background of the Merger........................................................................................
Recommendation of the Advance Board of Directors
and Reasons for the Merger..................................................................................
Opinion of Advance's Financial Advisor..........................................................................
Treatment of Stock Options......................................................................................
Surrender of Stock Certificates; Payment for Shares.............................................................
Financing the Transaction.......................................................................................
Board of Directors' Covenant to Recommend the Merger Agreement..................................................
No Solicitation.................................................................................................
Conditions to the Merger........................................................................................
Representations and Warranties of Advance and Parkvale..........................................................
Conduct Pending the Merger......................................................................................
Extension, Waiver and Amendment of the Merger Agreement.........................................................
Termination of the Merger Agreement.............................................................................
Expenses and Termination Fee....................................................................................
Interests of Certain Persons in the Merger......................................................................
Employee Benefits Matters.......................................................................................
Regulatory Approvals............................................................................................
Certain Federal Income Tax Consequences.........................................................................
Accounting Treatment............................................................................................
Stockholder Agreements..........................................................................................
Dissenters' Rights of Appraisal.................................................................................
MARKET FOR COMMON STOCK AND DIVIDENDS..............................................................................
CERTAIN BENEFICIAL OWNERS OF ADVANCE COMMON STOCK..................................................................
PROPOSAL 2: ELECTION OF DIRECTORS.................................................................................
Biographical Information........................................................................................
Executive Compensation..........................................................................................
Other Benefits..................................................................................................
Director Compensation...........................................................................................
Meetings and Committees of the Board of Directors...............................................................
Audit Committee Report..........................................................................................
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PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS................................................
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING..................................................................
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.........................................................
WHERE YOU CAN FIND MORE INFORMATION................................................................................
Appendix A Agreement and Plan of Reorganization, dated September 1,
2004, by and among Parkvale Financial Corporation, Parkvale
Savings Bank, Advance Financial Bancorp and Advance
Financial Savings Bank........................................................... A-1
Appendix B Fairness Opinion of Keefe, Bruyette & Woods, Inc................................. B-1
Appendix C Section 262 of the Delaware General Corporation Law.............................. C-1
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QUESTIONS AND ANSWERS ABOUT VOTING PROCEDURES
FOR THE ANNUAL MEETING
Q. WHAT DO I NEED TO DO NOW?
A. First, carefully read this proxy statement in its entirety. Then, vote
your shares of Advance common stock by one of the following methods:
o marking, signing, dating and returning your proxy card in the
enclosed prepaid envelope; or
o attending the Annual Meeting and submitting a properly executed
proxy or ballot. If a broker holds your shares in "street name,"
you will need to get a proxy from your broker to vote your shares
in person.
Q. WHY IS MY VOTE IMPORTANT?
A. A majority of the outstanding shares of Advance common stock must be
represented in person or by proxy at the Annual Meeting for there to be
a quorum. If you do not vote using one of the methods described above,
it will be more difficult for Advance to obtain the necessary quorum to
hold its Annual Meeting. In addition, the affirmative vote of a
majority of the shares of Advance common stock outstanding and entitled
to vote at the Annual Meeting is necessary to approve and adopt the
merger agreement. Abstentions and failures to vote have the same effect
as a vote AGAINST the merger agreement.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
AUTOMATICALLY VOTE MY SHARES FOR ME?
A. No. If you do not provide your broker with instructions on how to vote
your shares that are held in street name your broker will not be
permitted to vote them. A broker "non-vote" has the same effect as a
vote AGAINST the merger agreement. Therefore, you should be sure to
provide your broker with instructions on how to vote these shares.
Please check the voting form used by your broker to see if your broker
offers telephone or internet voting.
Q. CAN I CHANGE MY VOTE?
A. Yes. If you have not voted through your broker, there are several ways
you can change your vote after you have submitted a proxy.
o First, you may send a written notice stating that you would like
to revoke your proxy to Advance's Corporate Secretary, Florence
K. McAlpine, Secretary, Advance Financial Bancorp, 1015 Commerce
Street, Wellsburg, West Virginia 26070;
o Second, you may complete and submit a new proxy card. Any earlier
proxy will be revoked automatically; or
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o Third, you may attend the meeting and vote in person. Any earlier
proxy will be revoked. However, simply attending the meeting
without voting will not revoke your earlier proxy.
If you have instructed a broker to vote your shares, you must follow
directions you receive from your broker to change your vote.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. Shortly after the closing date of the merger, an exchange agent
appointed by Parkvale Financial Corporation will send to you a letter
of transmittal containing written instructions for exchanging your
Advance stock certificates.
Please do not send in any Advance stock certificates until you have
received these written instructions. However, if you are not sure where
your stock certificates are located, now would be a good time to find
them so you don't encounter any delays in processing your exchange at
closing. Likewise, if your stock certificates are lost, please contact
Advance's Investor Relations Department at (304) 737-3531 to find out
how to get a replacement certificate.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We currently expect to complete the merger in the last quarter of 2004
or early 2005, assuming all the conditions to completion of the merger,
including obtaining the approval of Advance stockholders at the Annual
Meeting and receipt of all regulatory approvals, have been fulfilled.
Fulfilling some of these conditions, such as receiving certain
governmental clearances or approvals, is not entirely within our
control. If all the conditions to completion of the merger have not
been fulfilled at that time, we expect to complete the merger as
quickly as practicable once the conditions are fulfilled.
Q. WHOM DO I CALL IF I HAVE QUESTIONS ABOUT THE ANNUAL MEETING OR THE
MERGER?
A. You should direct any questions regarding the Annual Meeting of
Stockholders or the merger to Advance's Investor Relations Department
at (740) 264-1005.
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SUMMARY TERM SHEET
This summary highlights selected information from this proxy statement
and may not contain all of the information that may be important to you. To
understand the merger fully and for a more complete description of the legal
terms of the merger, you should read carefully this entire document, including
the merger agreement, a copy of which is included as Appendix A to this proxy
statement, and the other documents to which we have referred you. You may obtain
copies of all publicly filed reports and other information from the sources
listed under the section "Where You Can Find More Information," beginning on
page __. Page references are included in this summary to direct you to a more
complete description of the topics.
Throughout this document, "Advance," "we" and "our" refers to Advance
Financial Bancorp "Advance Financial Savings Bank" refers to our wholly-owned
banking subsidiary, Advance Financial Savings Bank, "Parkvale" refers to
Parkvale Financial Corporation and, unless the context otherwise requires,
Parkvale Savings Bank, a wholly-owned banking subsidiary of Parkvale having its
main office in Monroeville, Pennsylvania, which we refer to herein as "Parkvale
Savings Bank." Also, we refer to the merger between a newly-formed subsidiary of
Parkvale and Advance as the "merger" and the agreement and plan of
reorganization, dated as of September 1, 2004, by and among Parkvale, Parkvale
Savings Bank, Advance and Advance Financial Savings Bank as the "merger
agreement" and the merger between Parkvale Savings Bank and Advance Financial
Savings Bank as the "bank merger."
This proxy statement is first being mailed to stockholders of Advance
on or about November __, 2004.
THE PARTIES (PAGE __)
o Advance is a unitary thrift holding company incorporated in the
State of Delaware in September 1996 to be the holding company for
Advance Financial Savings Bank, a federally-chartered stock
savings bank. Advance Financial Savings Bank operates seven full
service facilities. It is subject to examination and
comprehensive regulation by the Office of Thrift Supervision
("OTS") and its deposits are federally insured by the Federal
Deposit Insurance Corporation ("FDIC"). Advance Financial Savings
Bank is a member of and owns capital stock in the Federal Home
Loan Bank ("FHLB") of Pittsburgh, which is one of the 12 regional
banks in the FHLB System.
Advance Financial Savings Bank operates a traditional savings
bank business, attracting deposit accounts from the general
public and using those deposits, together with other funds,
primarily to originate and invest in loans secured by one- to
four-family residential real estate, non-residential real estate,
and consumer and commercial assets. To a lesser extent, Advance
Financial Savings Bank also originates multi-family real estate
loans. At June 30, 2004, Advance had consolidated assets of
$321.1 million and stockholder's equity of $21.7 million. The
executive offices of Advance are located at 1015 Commerce Street,
Wellsburg, West Virginia 26070, and its telephone number for that
location is (304) 737-3531.
o Parkvale Financial Corporation is a unitary savings and loan
holding company incorporated under the laws of the Commonwealth
of Pennsylvania. It maintains two subsidiaries. Parkvale
Statutory Trust I is a Connecticut chartered investment
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company, and Parkvale Savings Bank is a Pennsylvania chartered
permanent reserve fund stock savings bank headquartered in
Monroeville, Pennsylvania. Parkvale is also involved in lending
in the greater Washington, D.C. and Columbus, Ohio areas through
its wholly-owned subsidiary, Parkvale Mortgage Corporation.
Parkvale Savings Bank conducts business in the greater Pittsburgh
metropolitan area through 39 full-service offices in Allegheny,
Beaver, Butler, Fayette, Washington and Westmoreland Counties.
With total assets of $1.6 billion at June 30, 2004, Parkvale was
the fifth largest financial institution headquartered in the
Pittsburgh metropolitan area and eleventh largest financial
institution with a significant presence in Western Pennsylvania.
Parkvale's principal executive offices are located at 4220
William Penn Highway, Monroeville, Pennsylvania 15146, and its
telephone number for that location is (412) 373-7200.
ADVANCE STOCKHOLDERS WILL RECEIVE $26.00 IN CASH FOR EACH SHARE OF ADVANCE
COMMON STOCK. (PAGE __)
Parkvale and Advance propose a transaction in which Advance momentarily
will become a wholly-owned subsidiary of Parkvale, by virtue of the merger of a
newly-formed subsidiary of Parkvale with and into Advance, before it is merged
with and liquidated into Parkvale. If the acquisition of Advance by Parkvale is
completed, you will have the right to receive $26.00 in cash, without interest,
for each share of Advance common stock that you own as of the effective time of
the merger. You will need to surrender your Advance stock certificates to
receive the cash merger consideration, but you should not send us any
certificates now. If the merger is completed, an exchange agent appointed by
Parkvale will send you detailed instructions on how to exchange your shares.
THE MERGER WILL BE TAXABLE FOR ADVANCE STOCKHOLDERS. (PAGE __)
For federal income tax purposes, the merger will be treated as the sale
to Parkvale of all of the shares of Advance common stock. You will recognize
taxable gain or loss equal to the difference between the cash payment (i.e.,
$26.00 per share) that you receive for your shares of Advance common stock and
your adjusted tax basis in your shares that you exchange for that payment. In
general, the gain or loss will be either long-term capital gain or short-term
capital gain depending on the length of time you have held your shares of
Advance common stock.
Tax matters are complicated, and the tax consequences of the merger may
vary among stockholders. In addition, you may be subject to state, local or
foreign tax laws that are not discussed in this proxy statement. You should
therefore consult your own tax advisor for a full understanding of the tax
consequences to you of the merger.
OUTSTANDING ADVANCE STOCK OPTIONS WILL BE CANCELLED FOR THEIR CASH VALUE TO THE
EXTENT THEY ARE NOT EXERCISED PRIOR TO THE MERGER AND ALL UNVESTED RESTRICTED
STOCK AWARDS WILL VEST. (PAGE __)
At or immediately prior to the effective time of the merger (which is
the date on which the merger is consummated), each outstanding and unexercised
option to purchase shares of Advance common stock issued under the Advance stock
option plan, whether or not then vested and exercisable, will be terminated and
each holder will be entitled to receive in consideration for such option a cash
payment from Advance at the closing of the merger in an amount equal to the
difference between
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$26.00 and the per share exercise price of the option, multiplied by the number
of shares covered by the option, less any required tax withholdings. All
unvested stock options will vest and become exercisable immediately prior to the
merger. All unvested shares of restricted stock awarded under the Advance
Restricted Stock Plan will immediately vest and be converted to a right to
receive $26.00 per share, less any required withholding taxes, under the same
procedures applicable to other stockholders.
WE HAVE RECEIVED AN OPINION FROM OUR FINANCIAL ADVISOR THAT THE MERGER
CONSIDERATION IS FAIR TO ADVANCE'S STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW.
(PAGE __)
Among other factors considered in deciding to approve the merger
agreement, the Advance board of directors received the written opinion of its
financial advisor, Keefe, Bruyette & Woods, Inc. ("KBW") that, as of September
1, 2004 (the date on which the Advance board of directors approved the merger
agreement), the $26.00 cash merger consideration is fair to the holders of
Advance common stock from a financial point of view. The opinion is included as
Appendix B to this proxy statement. You should read this opinion completely to
understand the assumptions made, matters considered and limitations of the
review undertaken by KBW in providing its opinion. KBW's opinion is directed to
the Advance board of directors and does not constitute a recommendation to any
stockholder as to any matters relating to the merger, including how to vote.
THE ANNUAL MEETING (PAGE __)
The Annual Meeting will be held at __:__ _.m., Eastern Time, on
December __, 2004, at the Wintersville office, 805 Main Street, Wintersville,
Ohio. At the Annual Meeting, you will be asked to approve and adopt the merger
agreement, elect three directors, ratify the appointment of independent
accountants and to act on any other matters that may properly come before the
Annual Meeting.
RECORD DATE; VOTES REQUIRED (PAGES __-__)
You can vote at the Annual Meeting if you owned shares of Advance
common stock as of the close of business on November __, 2004. On that date,
there were _______ shares of Advance common stock outstanding. You will have one
vote at the Annual Meeting for each share of Advance common stock that you owned
of record on that date.
The affirmative vote of the holders of a majority of the shares of
Advance common stock outstanding and entitled to vote at the Annual Meeting at
which a quorum is present is necessary to approve and adopt the merger
agreement. A plurality of the votes cast is required to elect directors and the
affirmative vote of a majority of the votes cast is required to approve the
ratification of independent accountants.
Directors and senior officers of Advance have individually agreed with
Parkvale to vote their shares of Advance common stock in favor of the merger and
the merger agreement. These individuals own in the aggregate approximately ___%
of the outstanding shares of Advance common stock (exclusive of unexercised
stock options and shares held in a fiduciary capacity under ERISA plans).
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YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT BY ADVANCE STOCKHOLDERS AND RECOMMENDS APPROVAL OF THE OTHER
MATTERS BEING CONSIDERED AT THE ANNUAL MEETING. (PAGE __)
Based on the reasons described elsewhere in this proxy statement,
Advance's board of directors believes that the merger agreement is fair to and
in your best interests. Accordingly, your board of directors unanimously
recommends that you vote "FOR" approval and adoption of the merger agreement.
Your board also recommends approval of the other matters being considered at the
Annual Meeting.
ADVANCE AND PARKVALE MUST MEET SEVERAL CONDITIONS TO COMPLETE THE MERGER. (PAGE
__)
Completion of the merger depends on the satisfaction or waiver of a
number of conditions, including the following:
o Stockholders of Advance must approve the merger agreement in
accordance with applicable law;
o Parkvale and Advance must receive all required regulatory
approvals to complete the transactions contemplated by the merger
agreement, and any waiting periods required by law must have
passed;
o There must be no injunction, order, decree or law preventing or
materially restricting the completion of the transactions
contemplated by the merger agreement;
o The representations and warranties of each of Parkvale, Parkvale
Savings Bank, Advance and Advance Financial Savings Bank in the
merger agreement must be true and correct in all material
respects, in each case as of the date of the merger agreement and
as of the effective time of the merger except where the facts
that caused the failure of any representation or warranty to be
true would not, individually or in the aggregate, constitute a
"material adverse effect" and except for representations and
warranties which specifically relate to an earlier date;
o Parkvale and Advance must have performed in all material respects
their respective obligations required to be performed under the
merger agreement at or prior to the closing of the merger;
o The consent, approval or waiver of each person (other than
required regulatory approvals) whose consent or approval shall be
required in order to permit the lawful completion of the
transactions contemplated by the merger agreement shall have been
obtained, and none of such permits, consents, waivers,
clearances, approvals and authorizations shall contain any term
or condition which would materially impair the value of Advance
or Advance Financial Savings Bank to Parkvale; and
o Parkvale shall have provided confirmation to Advance that an
amount equal to the aggregate merger consideration has been
deposited with the exchange agent.
Unless prohibited by law, either Parkvale or Advance could elect to
waive any of the conditions for its benefit that have not been satisfied and
complete the merger anyway. The parties cannot be
11
certain whether or when any of the conditions to the merger will be satisfied or
waived where permissible, or that the merger will be completed.
THE PARTIES NEED TO OBTAIN VARIOUS REGULATORY APPROVALS IN ORDER TO COMPLETE THE
MERGER AND THE BANK MERGER. (PAGE __)
To complete the merger and the bank merger, the parties and their
affiliates need to obtain the consent or prior approval of, give notice to or
obtain a waiver from various regulatory authorities, including the Office of
Thrift Supervision or OTS, the Federal Deposit Insurance Corporation or FDIC and
Pennsylvania bank regulatory authorities. The U.S. Department of Justice may
provide input into the approval process of federal banking agencies and will
have between 15 and 30 days following any approval by a federal banking agency
of an application to challenge the approval on antitrust grounds. Parkvale and
Advance have filed or will file all necessary applications, notices and requests
for waiver with applicable regulatory authorities in connection with the merger
and the bank merger. Parkvale and Advance cannot predict, however, whether or
when all required regulatory approvals, consents or waivers will be obtained,
what conditions they might include, or whether they will be received on a timely
basis.
THE MERGER AGREEMENT MAY BE TERMINATED BY THE PARTIES. A TERMINATION FEE MAY BE
DUE (PAGE __)
The merger agreement may be terminated at any time (even after approval
of the merger by the Advance stockholders) as follows:
o By mutual consent of the parties;
o By Parkvale or Advance 30 or more days after any required
regulatory approval for the completion of the transactions
contemplated by the merger agreement is denied or the application
is withdrawn at the request of the regulatory authorities or
approval is contingent upon any nonstandard condition that would
materially impair the value of Advance to Parkvale;
o By Parkvale or Advance if the merger is not completed by June 30,
2005 or if stockholders of Advance fail to approve the merger
agreement, unless the failure of such occurrence is due to the
failure by the party seeking the termination of the merger
agreement to perform its obligations under the merger agreement;
and
o By Parkvale or Advance if the other party materially breaches any
of its representations, warranties, covenants or agreements under
the merger agreement and the breach has not been cured within 30
days after written notice of the breach, provided that the
terminating party is not then in material breach of the merger
agreement.
In addition, Parkvale may terminate the merger agreement in the event
that (i) Advance, without having received Parkvale's prior written consent,
enters into an agreement to engage in an acquisition transaction with any person
other than Parkvale, (ii) the Advance board of directors recommends that the
Advance stockholders approve or accept an acquisition transaction with any
person other than Parkvale, or (iii) any person or group, other than Parkvale
acquires beneficial ownership of, or the right to acquire beneficial ownership
of, 25% or more of the aggregate voting power represented by the outstanding
Advance common stock.
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If the merger agreement is terminated under certain circumstances,
Advance is required to pay Parkvale a termination fee of $1.5 million.
CERTAIN DIRECTORS AND OFFICERS OF ADVANCE HAVE INTERESTS IN THE MERGER WHICH
DIFFER FROM YOUR INTERESTS AS AN ADVANCE STOCKHOLDER.
(PAGE __)
Some of the directors and executive officers of Advance have
agreements, stock options, restricted stock awards and other benefit plans or
arrangements that provide them with interests in the merger that are different
from, or in addition to, your interests. These interests arise from the merger
agreement and because of rights under benefits and compensation plans or
arrangements maintained by Advance or Advance Financial Savings Bank and, in the
case of the executive officers, under employment or special retention
agreements, and include the following:
o The vesting of all unvested stock options granted under Advance's
stock option plan upon consummation of the merger;
o The allocation under the Advance Financial Savings Bank ESOP of
any unallocated assets attributable to the exchange of shares of
Advance common stock will be made to all plan participants, pro
rata based upon allocated account balances, including the
accounts of executive officers, following termination of the
ESOP, receipt of a favorable determination letter from the IRS
and the complete repayment of the outstanding ESOP loan balance
upon consummation of the merger;
o Severance payments to Stephen M. Gagliardi, president and chief
executive officer of Advance upon his termination of employment
as of the merger in the aggregate amount of approximately
$506,000, in accordance with his employment agreement with
Advance;
o A new consulting and noncompetition agreement entered into
between Parkvale and Mr. Stephen M. Gagliardi to be effective
upon closing which will provide for a two year term with monthly
payments of $3,000; and
o Parkvale's agreement to provide indemnification arrangements for,
among others, directors and executive officers of Advance and to
maintain directors' and officers' indemnification insurance for
such persons for a period of three years following the merger.
The board of directors of Advance was aware of these factors and
considered them in approving the merger and the merger agreement.
ADVANCE STOCKHOLDERS HAVE DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER.
(PAGE __ AND APPENDIX C)
In accordance with Delaware law, holders of Advance common stock are
entitled to exercise dissenters' or appraisal rights in connection with the
merger. Advance stockholders electing to receive appraisal rights must comply
with the provisions of Section 262 of the Delaware General Corporation Law in
order to perfect their rights. Advance will require strict compliance with the
statutory procedures. A copy of Section 262 is attached as Appendix C hereto. In
view of the complexity of
13
Section 262, stockholders who wish to dissent from the merger and pursue
appraisal rights may want to consult their legal advisors.
THE ANNUAL MEETING
TIME, DATE AND PLACE
An Annual Meeting of Stockholders of Advance will be held at __:__
_.m., Eastern Time, on ____________, December __, 2004 at
the Wintersville office, 805 Main Street, Wintersville, Ohio.
MATTERS TO BE CONSIDERED
The purpose of the Annual Meeting is to consider the following matters:
o The approval and adoption of the merger agreement;
o The election of three directors;
o The ratification of the appointment of independent accountants
for the fiscal year ended June 30, 2005; and
o To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement of the Annual
Meeting (the Board of Directors is not aware of any other
business).
Together with this document we are also sending you our 2004 Annual
Report to Stockholders and a form of proxy that is being solicited by the Board
of Directors.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
The close of business on November __, 2004 has been fixed by Advance as
the record date for the determination of holders of Advance common stock
entitled to notice of and to vote at the Annual Meeting and any adjournment or
postponement of the Annual Meeting. At the close of business on the record date,
there were ___________ shares of Advance common stock outstanding and entitled
to vote. Each share of Advance common stock entitles the holder to one vote at
the Annual Meeting on all matters properly presented at the Annual Meeting.
HOW TO VOTE YOUR SHARES
Shareholders of record may vote by mail or by attending the Annual
Meeting and voting in person. If you choose to vote by mail, simply mark the
enclosed proxy card, date and sign it, and return it in the postage paid
envelope provided.
If your shares are held in the name of a bank, broker or other holder
of record, you will receive instructions from the holder of record that you must
follow in order for your shares to be voted. Also, please note that if the
holder of record of your shares is a broker, bank or other nominee and you wish
14
to vote in person at the Annual Meeting, you must bring a letter from the
broker, bank or other nominee confirming that you are the beneficial owner of
the shares.
Any stockholder executing a proxy may revoke it at any time before it
is voted by:
o Delivering to the Secretary of Advance prior to the Annual
Meeting a written notice of revocation addressed to Florence K.
McAlpine, Secretary, Advance Financial Bancorp, 1015 Commerce
Street, Wellsburg, West Virginia 26070;
o Delivering to Advance prior to the Annual Meeting a properly
executed proxy with a later date; or
o Attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not, in and of itself, constitute
revocation of a proxy.
Each proxy returned to Advance (and not revoked) by a holder of Advance
common stock will be voted in accordance with the instructions indicated
thereon. If no instructions are indicated, the proxy will be voted "FOR"
approval and adoption of the merger agreement and the related agreement of
merger and "FOR" approval of the other matters being considered at the Annual
Meeting.
At this time, the Advance board of directors is unaware of any matters,
other than set forth above, that may be presented for action at the Annual
Meeting or any adjournment or postponement of the Annual Meeting. If other
matters are properly presented, however, the persons named as proxies will vote
in accordance with their judgment with respect to such matters. The persons
named as proxies by a stockholder may propose and vote for one or more
adjournments or postponements of the Annual Meeting to permit additional
solicitation of proxies in favor of approval and adoption of the merger
agreement, but no proxy voted against the merger agreement will be voted in
favor of any such adjournment or postponement.
VOTES REQUIRED
A quorum, consisting of the holders of a majority of the issued and
outstanding shares of Advance common stock, must be present in person or by
proxy before any action may be taken at the Annual Meeting. Abstentions will be
treated as shares that are present for purposes of determining the presence of a
quorum.
The affirmative vote of a majority of the holders of a majority of the
shares of Advance common stock outstanding and entitled to vote at the Annual
Meeting, in person or by proxy, is necessary to approve and adopt the merger
agreement on behalf of Advance. The affirmative vote of a plurality of the votes
cast is required to elect directors and the affirmative vote of a majority of
the votes cast is required to approve the ratification of independent
accountants.
Advance intends to count shares of Advance common stock present in
person at the Annual Meeting but not voting, and shares of Advance common stock
for which it has received proxies but with respect to which holders of such
shares have abstained on any matter, as present at the Annual Meeting for
purposes of determining whether a quorum exists. However, because approval and
adoption of the merger agreement requires the affirmative vote of a majority of
the shares of Advance common stock outstanding and entitled to vote at the
Annual Meeting, such nonvoting shares and abstentions will have the same effect
as a vote "AGAINST" the merger agreement. In addition, under
15
applicable rules, brokers who hold shares of Advance common stock in street name
for customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers in favor of the approval
of the merger agreement without specific instructions to that effect from such
customers. Accordingly, the failure of such customers to provide instructions
with respect to their shares of Advance common stock to their broker will have
the effect of the shares not being voted and will have the same effect as a vote
"AGAINST" the merger agreement. Such "broker non-votes," if any, will be counted
as a present for determining the presence or absence of a quorum for the
transaction of business at the Annual Meeting or any adjournment or postponement
thereof.
The directors and executive officers of Advance and their respective
affiliates collectively owned approximately ___% of the outstanding shares of
Advance common stock as of the record date for the Annual Meeting (inclusive of
stock options exercisable within 60 days). The directors and senior officers of
Advance have entered into stockholder agreements with Parkvale pursuant to which
they have agreed to vote all of their shares (excluding shares held in a
fiduciary capacity under ERISA plans) in favor of the merger agreement. These
individuals own in the aggregate approximately ___% of the outstanding shares of
Advance common stock (exclusive of unexercised stock options). See "Certain
Beneficial Owners of Advance Common Stock," on page ___ and "The Merger
- --Stockholder Agreements" on page ___. Neither Parkvale nor any affiliate of
Parkvale owns any shares of Advance.
SOLICITATION OF PROXIES
Advance will pay for the costs of mailing this proxy statement to its
stockholders, as well as all other costs incurred by it in connection with the
solicitation of proxies from its stockholders on behalf of its board of
directors. In addition to solicitation by mail, the directors, officers and
employees of Advance and its subsidiaries may solicit proxies from stockholders
of Advance in person or by telephone, telegram, facsimile or other electronic
methods without compensation other than reimbursement by Advance for their
actual expenses.
Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of Advance common stock held of record by such persons,
and Advance will reimburse such firms, custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses in connection therewith.
THE MERGER
The following information describes the material aspects of the merger
agreement and the merger. This description does not purport to be complete and
is qualified in its entirety by reference to the appendices to this proxy
statement, including the merger agreement attached as Appendix A. You are urged
to carefully read the merger agreement and the other appendices in their
entirety.
THE PARTIES
Set forth below is a brief description of the parties to the merger
agreement.
o Advance is a unitary thrift holding company incorporated in the
State of Delaware in September 1996 to be the holding company for
Advance Financial Savings Bank, a federally-chartered stock
savings bank. Advance Financial Savings Bank operates seven full
service facilities. It is subject to examination and
comprehensive regulation by the Office of Thrift Supervision
("OTS") and its deposits are federally insured by the
16
Federal Deposit Insurance Corporation ("FDIC"). Advance Financial
Savings Bank is a member of and owns capital stock in the Federal
Home Loan Bank ("FHLB") of Pittsburgh, which is one of the 12
regional banks in the FHLB System.
Advance Financial Savings Bank operates a traditional savings
bank business, attracting deposit accounts from the general
public and using those deposits, together with other funds,
primarily to originate and invest in loans secured by one- to
four-family residential real estate, non-residential real estate,
and consumer and commercial assets. To a lesser extent, Advance
Financial Savings Bank also originates multi-family real estate
loans. At June 30, 2004, Advance had consolidated assets of
$321.1 million and stockholder's equity of $21.7 million. The
executive offices of Advance are located at 1015 Commerce Street,
Wellsburg, West Virginia 26070, and its telephone number for that
location is (304) 737-3531.
o Parkvale Financial Corporation is a unitary savings and loan
holding company incorporated under the laws of the Commonwealth
of Pennsylvania. It maintains two subsidiaries. Parkvale
Statutory Trust I is a Connecticut chartered investment company,
and Parkvale Savings Bank is a Pennsylvania chartered permanent
reserve fund stock savings bank headquartered in Monroeville,
Pennsylvania. Parkvale is also involved in lending in the greater
Washington, D.C. and Columbus, Ohio areas through its
wholly-owned subsidiary, Parkvale Mortgage Corporation. Parkvale
Savings Bank conducts business in the greater Pittsburgh
metropolitan area through 39 full-service offices in Allegheny,
Beaver, Butler, Fayette, Washington and Westmoreland Counties.
With total assets of $1.6 billion at June 30, 2004, Parkvale was
the fifth largest financial institution headquartered in the
Pittsburgh metropolitan area and eleventh largest financial
institution with a significant presence in Western Pennsylvania.
Parkvale's principal executive offices are located at 4220
William Penn Highway, Monroeville, Pennsylvania 15146, and its
telephone number for that location is (412) 373-7200.
ACQUISITION STRUCTURE
Subject to the terms and conditions set forth in the Agreement, a
newly-formed subsidiary of Parkvale will be merged with and into Advance.
Immediately following the merger, Advance Financial Savings Bank will be merged
with and into Parkvale Savings Bank and Advance will be merged with and
liquidated into Parkvale.
MERGER CONSIDERATION
At the effective time of the merger, each share of Advance common stock
issued and outstanding immediately prior to the effective time (other than
certain shares held by Advance or Parkvale and dissenting shares) will be
cancelled and converted automatically into the right to receive from Parkvale an
amount equal to $26.00 in cash, without interest.
After the completion of the merger, holders of certificates that prior
to the merger represented issued and outstanding shares of Advance common stock
(other than holders who have perfected dissenters' rights of appraisal) will
have no rights with respect to those shares except for the right to surrender
the certificates for the merger consideration. After the completion of the
merger, holders of
17
shares of Advance common stock will have no continuing equity interest in
Advance or Parkvale and, therefore, will not share in future earnings, dividends
or growth of Advance or Parkvale.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when a certificate of merger, executed
in accordance with the relevant provisions of the Delaware General Corporation
Law, is filed with the Secretary of State of the State of Delaware (or such
later time as may be set forth in the certificate of merger), which will not be
done unless and until all conditions to the obligations of the parties to
consummate the merger are satisfied or waived where permissible. See " --
Conditions to the Merger," beginning on page __. Although no assurance can be
given in this regard, it is anticipated that the merger will become effective
late in the fourth quarter of 2004 or early 2005.
BACKGROUND OF THE MERGER
The management and the board of directors of Advance considered on a
regular basis various strategic alternatives as part of their continuing efforts
to enhance Advance's community banking franchise and to maximize shareholder
value. These strategic alternatives included the possibility of entering into a
strategic business combination with a similarly-sized or larger institution. On
March 16, 2004, KBW met with Advance's board and made a presentation to
Advance's board on the strategic alternatives available to Advance and provided
an analysis of each strategic alternative. The presentation included a
discussion of Advance's operations, the markets in which it competes, Advance's
anticipated future financial performance as an independent company, financial
institutions which might be interested in pursuing an acquisition of Advance,
how Advance would be viewed by parties interested in such an acquisition, and
the pricing multiples in the mergers and acquisitions market for financial
institutions that might be considered comparable to Advance. After this
presentation which the board discussed at length, the Board authorized the
engagement of KBW and authorized KBW to contact potential merger parties to
determine the interest of such parties in a possible strategic combination.
In May 2004, KBW initiated contact with a number of potential
acquirers, and, following execution of confidentiality agreements with these
parties, KBW provided such potential acquirers with a confidential information
memorandum regarding Advance. A total of 16 parties were contacted by KBW of
which 12 executed confidentiality agreements and received the confidential
memorandum. KBW received non-binding indications of interest from two parties,
including Parkvale. The Advance Board met on June 10, 2004 to review with KBW
the terms of these initial indications of interest. KBW presented a detailed
analysis of the financial terms of each of the indications of interest received
and the status of discussions with the other parties that received the
confidential offering memorandum. At such time, the Parkvale proposal provided
for a range of merger consideration of $25-27 for each share of Advance common
stock. The Board directed KBW to continue negotiations with these two parties
and to report back to the Board.
On June 21, 2004, the Advance Board again met with KBW to review the
status of the two proposals. The Board authorized KBW to continue negotiations
with these parties. Parkvale had confirmed its pricing range of $25-$27 per
share. The board determined to authorize Parkvale to conduct due diligence.
Parkvale conducted detailed due diligence with respect to Advance during July
and August 2004. After completion of its due diligence, on August 13, 2004
Parkvale confirmed its proposal at $26.00 per share. Parkvale presented the
initial draft of the definitive merger agreement to Advance on August 17, 2004.
Such draft merger agreement was distributed to each director of
18
Advance on August ___, 2004. Such documents were further revised and negotiated
until September 1, 2004.
On August 27, 2004, the Advance board met to discuss the status of
the negotiations with Parkvale, including a detailed review of the latest draft
of the merger agreement that had been furnished to each director, with the
assistance of special counsel Malizia Spidi & Fisch, PC, a discussion of matters
for which negotiations were still pending and a further review of the proposed
transaction and related aspects of the transaction as presented by its financial
advisor, KBW. Included in such review was an updated financial analysis of the
Parkvale proposal. The Advance board authorized legal counsel to continue
negotiations towards a definitive agreement.
On September 1, 2004, the Advance board met to consider the
definitive agreement. Legal counsel and representatives of KBW were present at
the meeting. KBW presented its analysis of the fairness from a financial point
of view of the transaction and delivered its fairness opinion. Special counsel
reviewed in detail the terms of the definitive agreement and responded to
questions from the Board. Special counsel then discussed with the Advance board
the legal standards applicable to the board's decisions and actions with respect
to the proposed transaction. At this meeting, the Advance board, by a unanimous
vote of all members of the board, determined that the merger is fair to, and in
the best interests of, Advance and its shareholders, approved the merger
agreement, and, subject to the exercise of its fiduciary duty, recommended that
Advance shareholders vote their shares in favor of approving the merger
agreement. Advance and Parkvale executed the definitive merger agreement on
September 1, 2004 and issued a joint press release publicly announcing the
transaction that day.
RECOMMENDATION OF THE ADVANCE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The Advance board has unanimously approved the merger agreement and
unanimously recommends that Advance stockholders vote "FOR" approval and
adoption of the merger agreement.
The Advance board has determined that the merger is fair to, and in the
best interests of, Advance and its stockholders. In approving the merger
agreement, the Advance board consulted with KBW with respect to the financial
aspects and fairness of the merger from a financial point of view and with its
legal counsel as to its legal duties and the terms of the merger agreement. In
arriving at its determination, the Advance board also considered a number of
factors, including the following:
o The board's familiarity with and review of information concerning
the business, results of operations, financial condition,
competitive position and future prospects of Advance;
o The current and prospective environment in which Advance
operates, including national, regional and local economic
conditions, the competitive environment for banks and other
financial institutions generally and the increased regulatory
burdens on financial institutions generally and the trend toward
consolidation in the banking industry and in the financial
services industry;
o The financial presentation of KBW and the opinion of KBW that, as
of the date of such opinion, the merger consideration of $26.00
in cash per share was fair, from a financial point of view, to
the holders of Advance common stock (see " -- Opinion of
Advance's Financial Advisor," on page __);
19
o The historical market prices of the Advance common stock and the
fact that the $26.00 per share merger consideration represented a
43.6% premium over the per share closing price of the Advance
common stock on the business day before the merger was announced
and a 41.9% premium over the average per share closing prices of
the Advance common stock during the four-week period immediately
preceding the merger announcement (see "Market for Common Stock
and Dividends" on page __);
o Results that could be expected to be obtained by Advance if it
continued to operate independently, and the likely benefits to
stockholders of such course, as compared with the value of the
merger consideration being offered by Parkvale;
o The ability of Parkvale to pay the aggregate merger consideration
and to receive the requisite regulatory approvals in a timely
manner;
o The fact that the consideration to be received in the merger is
cash, thus eliminating any uncertainty in valuing the merger
consideration to be received by Advance stockholders, and that
this consideration would result in a fully-taxable transaction to
Advance stockholders;
o KBW's assessment that it currently was unlikely that another
acquiror had both the willingness and the financial capability to
offer to acquire Advance at a price which was higher than that
being offered by Parkvale;
o The terms and conditions of the merger agreement, including the
parties' respective representations, warranties, covenants and
other agreements, the conditions to closing, a provision which
permits Advance's board of directors, in the exercise of its
fiduciary duties, under certain conditions, to furnish
information to, or engage in negotiations with, a third party
which has submitted an unsolicited proposal to acquire Advance
and a provision providing for Advance's payment of a termination
fee to Parkvale if the merger agreement is terminated under
certain circumstances and the effect such termination fee could
have on a third party's decision to propose a merger or similar
transaction to Advance at a higher price than that contemplated
by the merger with Parkvale;
o The effects of the merger on Advance's depositors and customers
and the communities served by Advance which was deemed to be
favorable given that they would be served by a geographically
diversified organization which had greater resources than
Advance; and
o The effects of the merger on Advance's employees, including the
prospects for employment with a large, growing organization such
as Parkvale and the severance and other benefits agreed to be
provided by Parkvale to employees whose employment was terminated
in connection with the merger.
The discussion and factors considered by the Advance board is not
intended to be exhaustive, but includes all material factors considered. In
approving the merger agreement, the Advance board did not assign any specific or
relative weights to any of the foregoing factors and individual directors may
have weighted factors differently.
20
OPINION OF ADVANCE'S FINANCIAL ADVISOR
On March 16, 2004, the Advance board met with representatives from KBW
for a strategic planning session to discuss recent trends in the banking
industry and the prospects for Advance. The Advance board discussed the changes
that had occurred in the market for publicly traded thrifts in recent quarters
and the difficult strategic issues facing banking institutions in general and,
in particular, smaller institutions like Advance. The Board also considered
increased competition, new technology and the decreasing pool of potential
acquirors as a result of consolidation in the thrift and banking industry. At
this meeting, KBW also reviewed the then current merger market, the various
pricing methods, a range of values for Advance based on these pricing methods,
as well as a review of other successful strategies that other institutions have
implemented.
On March 22, 2004, Advance retained KBW to evaluate Advance's strategic
alternatives as part of a shareholder enhancement program and to review and
evaluate any specific proposals for a strategic alliance that might be received
regarding an alliance with Advance. KBW, as part of its investment banking
business, is regularly engaged in the evaluation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings and
distributions of listed and unlisted securities. KBW is familiar with the market
for common stocks of publicly traded banks, thrifts and bank holding companies.
The Advance board selected KBW on the basis of the firm's reputation and its
experience, expertise in transactions similar to the merger, and its prior
relationship with Advance.
Pursuant to its engagement, KBW was asked to render an opinion as to
the fairness, from a financial point of view, of the merger consideration to be
paid to the shareholders of Advance. KBW delivered its opinion to the Advance
board that, as of September 1, 2004, the merger consideration is fair, from a
financial point of view, to the shareholders of Advance. No limitations were
imposed by the Advance board upon KBW with respect to the investigations made or
procedures followed by it in rendering its opinion. KBW has consented to the
inclusion in this proxy statement of the summary of its opinion to the Advance
board and to the reference to the entire opinion attached hereto as Appendix B.
The full text of the KBW opinion, which is attached as Appendix B to
this proxy statement, sets forth certain assumptions made, matters considered
and limitations on the review undertaken by KBW, and should be read in its
entirety. The summary of the opinion of KBW set forth in this proxy statement is
qualified in its entirety by reference to the opinion.
In rendering its opinion for Advance, KBW (i) reviewed the merger
agreement (ii) Annual Reports and Forms 10-KSB for the years ended June 30,
2001, 2002, 2003 for Advance (iii) Advance's proxy statements for the years
ended June 30, 2002 and 2003 (iv) Advance's unaudited financial statements for
the year ended June 30, 2004 (v) quarterly reports on Form 10-QSB for Advance
(vi) discussed with senior management and the board of directors of Advance the
current position and prospective outlook for Advance, (vii) considered
historical quotations, levels of activity and prices of recorded transactions in
Advance's common stock, (viii) reviewed the financial and stock market data of
other banks and the financial and structural terms of several other recent
transactions involving mergers and acquisitions of comparably situated thrifts,
and (ix) performed other analyses which KBW considered appropriate.
With respect to Parkvale, KBW reviewed (i) Parkvale's annual reports
and Forms 10-K for the years ended June 30, 2001, 2002 and 2003; (ii) Parkvale's
quarterly reports on Form 10-Q (iii) discussed with Parkvale management funding
for transaction and required capital levels.
21
Analysis of Recent Comparable Acquisition Transactions. Also in
rendering its opinion, KBW analyzed certain comparable transactions involving
thrifts, comparing the acquisition price relative to book value, tangible book
value, latest twelve months earnings, and premium to core deposits. The analysis
included a comparison of the minimum, median and maximum of the above ratios for
representative pending acquisitions where the selling institution was a thrift,
had assets between $100 million and $750 million, tangible equity / tangible
assets less than 9%, and return on average equity greater than 9%. As a result
of these transaction criteria, the following selling thrifts were used in
analyzing comparable transactions:
Selling Institution:
- --------------------
Ipswich Bancshares Inc. Equitable Bank
Family Savings Bank, FSB Trust Bancorp Inc.
American Home Loan Corp. Fidelity Bancorp, Inc.
Alliance Bancorp of New England Liberty Bancshares Inc.
Lighthouse Financial Services
The transaction analysis resulted in a range of values for Advance based upon
comparable thrift merger and acquisition transactions. KBW derived the median
pricing metrics of the aforementioned comparable group and summarized the
results of comparative thrift merger and acquisition transactions and compared
the range of values to the consideration received by Advance shareholders. The
comparable thrift merger and acquisition statistics are as follows:
----------- ------------ ------------- --------
Price to Price to last Core
Price to Tangible 12 Months Deposit
Book Ratio Book Ratio Earnings Premium
(%) (%) (x) (%)
- -----------------------------------------------------------------------------
Minimum Value 133.0 133.0 10.5 4.0
- -----------------------------------------------------------------------------
Median Value 187.0 187.0 15.0 12.4
- -----------------------------------------------------------------------------
Maximum Value 332.5 332.5 23.7 36.5
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
$26.00 Parkvale Offer 175.5 246.0 15.3 9.2
- -----------------------------------------------------------------------------
KBW viewed the aforementioned comparable group as the most appropriate
in deriving a comparable transaction value based on Advance's size, capital
ratio and earnings. KBW viewed the fact that, with the query based on the above
criteria producing nine transactions with reported pricing metrics in the
comparable group, as being statistically significant for the purposes of
comparison. KBW viewed the four resulting metrics (price to book value, price to
tangible book value, price to last twelve months earnings and core deposit
premium) from the comparable transactions on a median basis, as the key metrics
used to evaluate the fairness, from a financial point of view, of the
transaction.
Given that the value of the consideration on an aggregate basis to be
paid in the merger, as of the date of the opinion, is greater than the median
value of the range of comparable thrift transactions for price to tangible book
value and price to latest twelve month earnings, KBW believes that this analysis
supports the fairness, from a financial point of view, to Advance and its
shareholders of the consideration to be paid in the merger.
22
Discounted Cash Flow Analysis. KBW performed a discounted cash flow
analysis of the forecasted financial performance of Advance using a base case
scenario whereby earnings grew using management estimates. KBW applied
transaction multiples to earnings of 14.0x, 15.0x, 16.3x, 17.0x and 18.0x. The
terminal multiple range is based on the terminal earnings multiple of completed
transactions similar to this transaction. The combined cash flows and terminal
value were then discounted back to present values using different discount
ranges ranging from 10.3% to 12.3%, chosen to reflect different assumptions
regarding required rates of return of holders or prospective buyers of Advance
common stock taking into consideration such factors as current long term
interest rates, market capitalization size, earnings and liquidity of the
shares. The results of KBW's analysis are set forth in the following table:
----------------------------------------------
Sensitivity Analysis
----------------------------------------------
Terminal Multiple
14.0x 15.0x 16.3x 17.0x 18.0x
----------------------------------------------
Discount Reate 12.3% $18.37 $19.57 $21.14 $21.97 $23.17
11.8% $18.77 $19.99 $21.60 $22.45 $23.68
11.3% $19.18 $20.43 $22.08 $22.94 $24.20
10.8% $19.60 $20.88 $22.56 $23.45 $24.73
10.3% $20.03 $21.34 $23.06 $23.97 $25.28
Based on the foregoing criteria and assumptions, KBW determined that
the change-in-control present value of the Advance common stock ranged from
$18.37 to $25.28 per share. Given that the value of the consideration on a per
share basis to be paid in the merger, as of the date of the opinion, is greater
than the range derived from the discounted cash flow analysis, KBW believes that
this analysis supports the fairness, from a financial point of view, to Advance
and its shareholders of the consideration to be paid in the merger.
The discounted cash flow analyses of Advance does not necessarily
indicate actual values or actual future results and does not purport to reflect
the prices at which any securities may trade at the present or at any time in
the future. Discounted cash flow analysis is a widely used valuation
methodology, but the results of this methodology are highly dependent upon
numerous assumptions that must be made, including earnings growth rates,
dividend payout rates, terminal values, projected capital structure, and
discount rates.
In rendering its opinion, KBW assumed and relied upon the accuracy and
completeness of the financial information provided to it by Advance. In its
review, with the consent of the Advance Board, KBW did not undertake any
independent verification of the information provided to it, nor did it make any
independent appraisal or evaluation of the assets or liabilities and potential
or contingent liabilities of Advance.
The fairness opinion of KBW is limited to the fairness as of its date,
from a financial point of view, of the consideration to be paid in the merger
and does not address the underlying business decision to effect the merger (or
alternatives thereto) nor does it constitute a recommendation to any shareholder
of Advance as to how such shareholder should vote with respect to the merger.
23
KBW is a nationally recognized investment banking firm and is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
In preparing its analysis, KBW made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of KBW and Advance. The analyses performed
by KBW are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses and
do not purport to be appraisals or reflect the prices at which a business may be
sold.
KBW will receive a fee of 1% of the total transaction value for
services rendered in connection with advising and issuing a fairness opinion
regarding the merger. As of the date of the proxy statement, KBW has received
$85,000 of such fee; the remainder of the fee is due at the closing of the
transaction. Advance has also agreed to reimburse KBW for all reasonable
out-of-pocket expenses and disbursements, which will not exceed $5,000, incurred
in connection with its engagement and to indemnify KBW and its affiliates and
their respective directors, officers, employees, agents, and controlling persons
against certain expenses and liabilities, including liabilities under securities
laws.
TREATMENT OF STOCK OPTIONS
At or immediately prior to the effective time of the merger, each
outstanding and unexercised option to purchase shares of Advance common stock
issued under an Advance stock option plan, whether or not then vested and
exercisable, will be terminated and each holder will be entitled to receive in
consideration for such option a cash payment from Advance at the closing in an
amount equal to the difference between $26.00 and the per share exercise price
of the option, multiplied by the number of shares covered by the option, less
any required tax withholdings.
SURRENDER OF STOCK CERTIFICATES; PAYMENT FOR SHARES
Prior to the completion of the merger, Parkvale shall appoint an
exchange agent reasonably acceptable to Advance for the benefit of the holders
of shares of Advance common stock in connection with the merger. Immediately
prior to the effective time of the merger, Parkvale will deliver to the exchange
agent an amount of cash equal to the aggregate merger consideration.
No later than five business days following the completion of the
merger, Parkvale shall cause the exchange agent to mail to each holder of record
of shares of Advance common stock a letter of transmittal disclosing the
procedure for exchanging certificates representing shares of Advance common
stock for the merger consideration. After the effective time, each holder of a
certificate representing shares of issued and outstanding Advance common stock
(except for certain shares held by Advance or Parkvale) will, upon surrender to
the exchange agent of a certificate for exchange together with a properly
completed letter of transmittal, be entitled to receive $26.00 in cash, without
interest, multiplied by the number of shares of Advance common stock represented
by the certificate and the certificate so surrendered will be cancelled. No
interest will be paid or accrued on the merger consideration upon the surrender
of any certificate for the benefit of the holder of the certificate.
Any portion of cash delivered to the exchange agent by Parkvale that
remains unclaimed by the former stockholders of Advance for six months after the
effective time will be delivered to Parkvale. Any stockholders of Advance who
have not exchanged their certificates as of that date may look only to
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Parkvale for payment of the merger consideration. However, neither Parkvale nor
any other entity or person shall be liable to any holder of shares of Advance
common stock for any consideration paid to a public official in accordance with
applicable abandoned property, escheat or similar laws.
FINANCING THE TRANSACTION
Based on _________ shares of Advance common stock currently
outstanding, the aggregate amount of consideration to be paid to Advance's
stockholders will be approximately $36.0 million. This amount would increase by
an additional $4.0 million if all options to purchase 155,859 shares of Advance
common stock which are currently outstanding were exercised prior to the
effective time of the merger. Parkvale has represented and warranted in the
merger agreement that it will have available to it immediately prior to the
effective time sufficient cash to pay the aggregate merger consideration to the
stockholders of Advance following completion of the merger.
BOARD OF DIRECTORS' COVENANT TO RECOMMEND THE MERGER AGREEMENT
The merger agreement requires the Advance board of directors to
recommend the approval and adoption of the merger agreement and the agreement of
merger by the Advance stockholders. The Advance board of directors is permitted
to fail to make such recommendation or withdraw, modify or change in a manner
adverse to Parkvale its recommendation to the Advance stockholders with respect
to the merger agreement and the merger but only if after consultation with and
considering the advice of its outside legal counsel, the board of directors
determines in good faith that the making of such recommendation or the failure
to withdraw, modify or change such recommendation, would or could reasonably be
expected to constitute a breach of its fiduciary duties under applicable law.
Notwithstanding the foregoing, even in the absence of a board recommendation of
approval, the merger agreement and the related agreement of merger must still be
submitted for approval and adoption by the Advance stockholders.
NO SOLICITATION
The merger agreement provides that neither Advance nor Advance
Financial Savings Bank shall and shall not authorize or permit any of its
subsidiaries or any of its or its subsidiaries' directors, officers, employees,
agents or representatives to, directly or indirectly initiate, solicit,
encourage, facilitate, hold any discussions or negotiations with, or provide any
information to any person, entity or group, other than Parkvale or Parkvale
Savings Bank concerning any acquisition transaction. The term "acquisition
transaction" is generally defined in the merger agreement as any merger, sale of
substantial assets or liabilities not in the ordinary course of business, sale
of shares of capital stock or similar transactions involving Advance or any
Advance subsidiary.
The merger agreement allows Advance to furnish information in
connection with an unsolicited acquisition transaction if the Advance board,
after having received advice of counsel, determines in good faith that the
failure to do so would or could reasonably be expected to constitute a breach of
its fiduciary duties under applicable law.
Advance is required to communicate to Parkvale the terms of any
proposal it receives with respect to an acquisition transaction.
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CONDITIONS TO THE MERGER
Completion of the merger is subject to the satisfaction of various
conditions set forth in the merger agreement or, to the extent permitted by law,
the waiver of those conditions by the party entitled to do so, at or before the
effective time of the merger.
Each of the parties' obligation to complete the merger is subject to
the following conditions:
o All corporate action required to be taken to authorize the
execution and delivery of the merger agreement and of the related
agreement of merger and the consummation of the transactions
contemplated thereby shall have been duly taken by all of the
parties to the merger agreement, including the approval of the
merger agreement by the stockholders of Advance;
o All regulatory approvals required to complete the transactions
contemplated by the merger agreement shall have been obtained
without any nonstandard condition that would materially impair
the value of Advance to Parkvale, all conditions to such
approvals shall have been satisfied and all statutory waiting
periods in respect thereof shall have expired; and
o No order, judgment or decree shall be outstanding against any
party to the merger agreement that would have the effect of
preventing completion of the merger and no suit, action or other
proceeding shall be pending or threatened by any governmental
body seeking to restrain or prohibit consummation of the merger
or obtain substantial monetary penalties in connection with the
merger agreement.
The obligations of Parkvale and Parkvale Savings Bank to complete the
merger are also conditioned upon satisfaction or waiver of each of the
following:
o Advance and Advance Financial Savings Bank shall have performed
in all material respects all obligations required to be performed
by them under the merger agreement at or prior to the closing
date of the merger and the representations and warranties of
Advance and Advance Financial Savings Bank in the merger
agreement shall be true and correct in all material respects, in
each case, as of the date of the merger agreement and as of the
effective time of the merger, except where the facts that caused
the failure of any representation or warranty to be true would
not, individually or in the aggregate, constitute a "material
adverse effect" (as such term is defined in the merger agreement)
and except as to any representation or warranty which
specifically relates to an earlier date;
o All permits, consents, waivers, clearances and other
authorizations of governmental agencies and third parties which
are necessary in connection with the merger shall have been
obtained and none shall include any nonstandard condition that
would materially impair the value of Advance and its subsidiaries
to Parkvale; and
o Parkvale shall have received a certificate from specified
officers of Advance and Advance Financial Savings Bank with
respect to compliance with each of the foregoing conditions.
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The obligations of Advance and Advance Financial Savings Bank to
complete the merger are also conditioned upon satisfaction or waiver of each of
the following:
o Parkvale and Parkvale Savings Bank shall have performed in all
material respects all obligations required to be performed by
them under the merger agreement at or prior to the closing date
of the merger and the representations and warranties of Parkvale
and Parkvale Savings Bank in the merger agreement shall be true
and correct in all material respects, in each case, as of the
date of the merger agreement and as of the effective time of the
merger, except where the facts that caused the failure of any
representation or warranty to be true would not, individually or
in the aggregate, constitute a "material adverse effect" (as such
term is defined in the merger agreement) and except as to any
representation or warranty which specifically relates to an
earlier date;
o Advance and Advance Financial Savings Bank shall have received a
certificate from specified officers of Parkvale and Parkvale
Savings Bank with respect to compliance with each of the
foregoing conditions; and
o Parkvale shall have provided confirmation to Advance that an
amount equal to the aggregate merger consideration in immediately
available funds shall have been deposited with the exchange
agent.
REPRESENTATIONS AND WARRANTIES OF ADVANCE AND PARKVALE
Advance and Parkvale each has made representations and warranties to
the other with respect to (among other things):
o corporate organization;
o corporate authority and power to enter into the merger agreement
and to complete the transactions contemplated by the merger
agreement;
o financial statements;
o absence of changes or events since June 30, 2004 which would have
a material adverse effect;
o pending or threatened legal proceedings;
o broker's fees;
o the truth and accuracy of information included in this proxy
statement as of certain time periods;
o insurance of deposits;
o the truth and accuracy of the representations and warranties; and
o compliance with laws.
Advance has also made additional representations and warranties to
Parkvale with respect to:
o its capitalization;
o taxes and tax returns;
o employee benefit plans and the administration of these plans;
o securities filings and reports with regulatory authorities by
Advance and its subsidiaries;
o certain contracts;
o properties and insurance;
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o environmental matters;
o allowance for loan losses and real estate owned;
o minute books;
o transactions with affiliates; and
o required vote to approve the merger and receipt of fairness
opinion.
Parkvale has also made a representation and warranty to Advance
regarding the availability of cash sufficient for it to pay the merger
consideration and any other amounts payable under the merger agreement.
CONDUCT PENDING THE MERGER
The merger agreement contains covenants of Advance and Parkvale pending
the completion of the merger, including covenants regarding the conduct of
Advance's business from the date that the merger agreement was executed until
the merger is completed. These covenants are briefly described below.
Advance has agreed that it will, and will cause its subsidiaries to,
conduct its business in the ordinary course consistent with past practice and
use reasonable best efforts to preserve its business organization, employees and
advantageous business relationships and to retain the services of its officers
and key employees.
Advance has further agreed that, except as expressly contemplated or
permitted by the merger agreement, prior to the effective time of the merger, it
will not, and will not permit any of its subsidiaries to, do any of the
following without the prior written consent of Parkvale:
o change any provision of their certificate of incorporation,
bylaws or other similar governing documents;
o except for the issuance of Advance common stock pursuant to the
present terms of outstanding stock options, (i) change the number
of shares of its authorized or issued capital stock, (ii) issue
or grant any option, warrant, call, commitment, subscription,
award, right to purchase or agreement of any character relating
to the authorized or issued capital stock of Advance, or any
securities convertible into shares of such capital stock, or
(iii) split, combine or reclassify any shares of its capital
stock, or redeem or otherwise acquire any shares of such capital
stock;
o declare or pay any dividends on, or make other distributions in
respect of, any of its capital stock, provided, however, Advance
is permitted to continue to declare and pay its regular quarterly
cash dividend of $0.10 per share for each full calendar quarter
prior to consummation of the merger but no dividends may be
declared or paid for any partial quarter;
o (i) grant any severance or termination pay to (other than
pursuant to binding contracts of Advance previously disclosed
under the terms of the merger agreement), or enter into or amend
any employment, consulting or compensation agreement with, any of
its directors, officers or employees; or (ii) award any increase
in compensation or benefits to its directors, officers or
employees, except, in the case of employees, as may be
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granted in the ordinary course of business and consistent with
past practices and policies not to exceed 4.5% of the current
salary of each respective employee;
o (i) enter into or modify (except as may be required by applicable
law or as may be required by the merger agreement) any pension,
retirement, stock option, stock purchase, stock grant, stock
appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect
of any of its directors, officers or employees; or (ii) make any
contributions to the Advance ESOP or any other defined
contribution plan or any defined benefit pension or retirement
plan other than in the ordinary course of business consistent
with past practice;
o purchase or otherwise acquire, or sell or dispose of any assets
or incur any liabilities other than in the ordinary course of
business consistent with past practices and policies;
o make any capital expenditures in excess of $25,000 per
expenditure and $100,000 in the aggregate, other than pursuant to
existing binding commitments or expenditures necessary to
maintain existing assets in good repair;
o file any applications or make any contract with respect to
branching or site location or relocation;
o (i) make any material change in accounting methods or practices,
other than changes required by generally accepted accounting
principles, or (ii) change any of its methods of reporting income
and deductions for federal income tax purposes, except as
required by changes in laws or regulations;
o change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect
except as may be required by applicable law;
o engage in any transaction with an "affiliate" as defined in the
merger agreement;
o enter into any futures contract, option or other agreement or
take any other action for purposes of hedging the exposure of its
interest-earning assets and interest-bearing liabilities to
changes in market rates of interest;
o incur any liability for borrowed funds (other than in the case of
deposits, federal funds purchased, securities sold under
agreements to repurchase and FHLB advances in the ordinary course
of business) or place upon or permit any lien or encumbrance upon
any of its properties or assets, excepts for liens of the types
permitted in the merger agreement;
o acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) any business or entity;
o discharge or satisfy any material lien or encumbrance or pay any
material obligation or liability (absolute or contingent) other
than at scheduled maturity or in the ordinary course of business;
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o enter or agree to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets or
rights or requiring the consent of any party to the transfer and
assignment of any such assets or rights;
o invest in any investment securities other than United States
government agencies, mortgage-backed securities and insured
certificates of deposit with a maturity of two years or less
(seven years or less for mortgage-backed securities) or federal
funds;
o make or commit to make any commercial real estate loan to any one
person or entity (together with affiliates of such person or
entity) in excess of $300,000 in the aggregate;
o take any action that would result in any of its representations
and warranties contained in the merger agreement not being true
and correct in any material respect upon completion of the
merger; or
o agree to do any of the foregoing.
The merger agreement also contains covenants relating to, among other
things:
o Each party conferring with the other regarding its business,
operations, prospects and financial condition and matters
relating to the completion of the merger;
o The provision of current financial information to the other;
o Parkvale's access to information concerning Advance and the
confidentiality of the information;
o The preparation and filing of the required regulatory
applications and notices;
o The preparation and distribution of the proxy statement to be
sent to stockholders of Advance in connection with the
solicitation of their approval and adoption of the merger
agreement and all requisite regulatory filings;
o The provision by Parkvale of certain employee benefits;
o Supplementing disclosure schedules;
o Cooperation regarding the issuance of press releases related to
the merger;
o Consultation regarding Advance's loan, litigation and real estate
valuation practices and policies and the making of any
adjustments required to conform such policies to those of
Parkvale; o The redemption of Advance's Rights Plan if requested
by Parkvale;
o Amending Advance's Bylaws so as to delete certain residency
requirements for board members; and
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o The execution of a supplemental indenture in connection with
Advance's outstanding outstanding floating rate junior
subordinated deferrable interest debentures.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Prior to the completion of the merger, any provision of the merger
agreement may be waived, amended or modified by the parties. However, after the
vote by the stockholders of Advance, no amendment or modification may be made
that would reduce or change the amount of or the form of consideration to be
received by Advance's stockholders under the terms of the merger agreement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated before completion of the merger
(even if stockholders of Advance have already voted to approve it) by:
o the mutual consent of both parties;
o either party if (i) the merger is not completed by June 30, 2005
or (ii) the stockholders of Advance do not approve the merger
agreement at the Annual Meeting; however, the failure of such
occurrence cannot be due to the breach of any representation,
warranty or covenant contained in the merger agreement by the
party seeking to terminate;
o by either party upon written notice to the other 30 or more days
after the date upon which any application for a regulatory or
governmental approval necessary to consummate the merger shall
have been denied or withdrawn at the request or recommendation of
the applicable regulatory agency or governmental authority,
unless within such 30-day period a petition for rehearing or an
amended application is filed or noticed, or 30 or more days after
any petition for rehearing or amended application is denied;
o by either party if there shall have been a material breach of any
of the covenants, agreements or representations and warranties
set forth in the merger agreement. Each party must give the other
party 30 days to cure the breach. The party seeking to terminate
the merger agreement cannot be in material breach of any
representation, warranty, covenant or other agreement in the
merger agreement;
o by either party, if any of the applications for prior approval by
third parties and governmental bodies are denied or are approved
contingent upon the satisfaction of any non-standard condition or
requirement which, in the reasonable opinion of the Parkvale
board, would materially impair the value of Advance and Advance
Financial Savings Bank to Parkvale, and the time period for
appeals and requests for reconsideration has run; or
o by Parkvale in the event that (i) Advance, without having
received Parkvale's prior written consent, enters into an
agreement to engage in an acquisition transaction with any person
other than Parkvale, (ii) the Advance board of directors
recommends that the Advance stockholders approve or accept an
acquisition transaction with any person other than Parkvale, or
(iii) any person or group, other than Parkvale acquires
beneficial ownership of, or the right to acquire beneficial
ownership of, 25% or more
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of the aggregate voting power represented by the outstanding
Advance common stock (any of which events shall be considered a
"termination event").
EXPENSES AND TERMINATION FEE
All costs and expenses incurred in connection with the merger will be
paid by the party incurring such expense. However, in the event of a willful
breach by either party of any representation, warranty, covenant or agreement
contained in the merger agreement, the non-breaching party may pursue any remedy
available at law or in equity to enforce its rights and shall be paid by the
breaching party for all damages, costs and expenses incurred or suffered by the
non-breaching party or in the enforcement of its rights under the merger
agreement.
In addition, Advance will pay Parkvale a termination fee of $1.5
million upon the occurrence of a termination event (as defined under
"Termination of the Merger Agreement" above) prior to a fee termination event. A
fee termination event is the first to occur of the following:
o the effective time of the merger;
o 12 months after termination of the merger agreement following the
first occurrence of a preliminary termination event (as defined
below);
o termination of the merger agreement prior to the occurrence of a
termination event or preliminary termination event other than as
a result of a willful breach of any representation, warranty,
covenant or agreement by Advance; or
o 12 months after the termination of this agreement by Parkvale as
a result of a willful breach of any representation, warranty,
covenant or agreement by Advance;
A preliminary termination event is any of the following events:
o any person (other than Parkvale) shall have commenced or filed a
registration statement under the Securities Act of 1933 for any
tender offer or exchange offer to purchase shares of Advance
common stock such that upon consummation of such offer, such
person would own or control 10% or more Advance common stock;
o the holders of Advance common stock shall not have approved the
merger agreement at a meeting of stockholders held for such
purpose, or such meeting shall not have been held or have been
cancelled prior to termination to the merger agreement, or
Advance's board of directors shall have withdrawn or modified in
any manner adverse to Parkvale the recommendation of Advance's
board of directors with respect to the merger agreement after any
person shall have (i) made or disclosed an intention to make a
bona fide proposal to Advance or its stockholders to engage in an
acquisition transaction, (ii) commenced a tender offer, or filed
a registration statement with respect to an exchange offer, or
(iii) filed an application with an appropriate regulatory
authority for approval to engage in an acquisition transaction
with Advance; or
o Advance shall have breached any representation, warranty,
covenant or obligation in the merger agreement in a manner which
would entitle Parkvale to terminate the merger agreement and such
breach occurs after any person shall have (i) made or
32
disclosed an intention to make a bona fide proposal to Advance or
its stockholders to engage in an acquisition transaction, (ii)
commenced a tender offer or filed a registration statement under
the Securities Act of 1933 with respect to an exchange offer, or
(iii) filed an application or notice with the appropriate
regulatory authorities for approval to engage in an acquisition
transaction with Advance.
In the event of termination of the merger agreement by either Parkvale
or Advance as set forth above, the merger agreement shall become void and have
no effect, except that the provisions of the merger agreement relating to
confidentiality of information and expenses shall survive any such termination.
Notwithstanding the foregoing, neither Parkvale nor Advance shall be relieved or
released from any liabilities or damages arising out of its breach of any
provision of the merger agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When you are considering the recommendation of Advance's board of
directors with respect to approving the merger agreement and the merger, you
should be aware that Advance directors and executive officers have interests in
the merger as individuals which are in addition to, or different from, their
interests as stockholders of Advance. The Advance board of directors was aware
of these factors and considered them, among other matters, in approving the
merger agreement and the merger. These interests are described below.
EMPLOYMENT AND OTHER AGREEMENTS. Under the merger agreement, Parkvale
agreed to honor various contractual obligations which have been entered into by
Advance and or its subsidiaries and some of their executive officers, including
an employment agreement between Advance Financial Savings Bank and Mr. Stephen
M. Gagliardi. In accordance with this employment agreement and the merger
agreement, it is contemplated that Mr. Gagliardi's position will be terminated
upon the merger, and he should receive a severance payment under his employment
agreement in an amount equal to three times his five year average taxable
compensation. Such payment is estimated at approximately $506,000.
Concurrent with the execution of the merger agreement, Parkvale entered
into addenda to the existing employment agreements of Mr. Stephen M. Magnone,
Mr. Steve Martino, and Mr. Marc A. DeSantis which provide that in the event such
employees terminate their employment within one year following the effective
time of the merger in connection with the occurrence of certain events, such
individuals will be entitled to receive payments of approximately $239,000,
$250,000 and $186,000, assuming the merger is completed in 2004, or $257,000,
$267,000 and $202,000, if the merger is completed in 2005. If the
above-referenced payments, either alone or together with other payments and
benefits, would constitute a "parachute payment" under Section 280G of the
Internal Revenue Code of 1986, as amended, or the Code, then the amounts payable
shall be reduced by the amount which is the minimum necessary to result in no
portion of the payment being non-deductible pursuant to Section 280G of the
Code.
CONSULTING AND NONCOMPETITION AGREEMENT. Concurrent with the execution
of the merger agreement, Parkvale entered into a Consulting and Noncompetition
Agreement with Mr. Stephen M. Gagliardi. Such consulting agreement, which will
be effective upon completion of the merger, provides for a two year term with
monthly consulting fees of $3,000 as well as medical and dental benefits, an
automobile allowance of $1,000 per month and country club dues of $3,000 per
year.
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ADVISORY BOARD. Subject to the fiduciary duties of the Parkvale board,
each director of Advance as of the date of the merger agreement will be
requested by Parkvale to serve as a member of an Advisory Board for three
consecutive one-year terms following the effective time. Such Advisory Board
would meet quarterly and members would receive a fee of $275 per meeting
attended. Within 12 months following the effective time of the merger, the
Advisory Board will nominate one of its members to become a member of the
Parkvale board which nomination will be considered by the Nominating Committee
of the Parkvale board along with the qualifications of the other members of the
Advisory Board. The Nominating Committee will then make a recommendation as to
one member of the Advisory Board to be appointed to the Parkvale board.
EXISTING DIRECTOR RETIREMENT OBLIGATIONS. Two former directors of
Advance currently receive monthly retirement payments of $350 for Mr. Robert
Rawson and $450 for Mr. James Murphy which would be payable for the remainder of
their life. Parkvale has agreed to honor these obligations.
STOCK OPTION PLAN. Pursuant to the terms of Advance's stock option
plan, all unvested options to purchase shares of Advance common stock will
become vested and exercisable upon consummation of the merger. The following
table sets forth the number of options which were held by the directors and
executive officers of Advance as of the date of this document as well as the
payments that will be received in cancellation of such options at completion of
the merger before deducting any applicable withholding taxes. Certain of the
unvested awards shown below may vest in accordance with their terms prior to
consummation of the merger.
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Payment at Completion of
Merger on Cancellation of
Name Number of Stock Options Options *
- ---- ----------------------- ---------
Stephen M. Gagliardi 40,666.50 $548,998
John R. Sperlazza 9,487.50 $128,081
William E. Watson 9,487.50 $128,081
Frank Gary Young 9,487.50 $128,081
William B. Chesson 9,487.50 $128,081
Kelly M. Bethel 3,256.00 $25,299
Walker Peterson Holloway, Jr. 3,256.00 $25,299
Dominic J. Teramana, Jr. 3,256.00 $25,299
Stephen M. Magnone 10,000.00 $77,700
Steve D. Martino 10,000.00 $77,700
Marc A. DeSantis 10,000.00 $77,700
TOTAL 118,384.50 $1,370,319
* Before deduction of applicable withholding taxes.
EMPLOYEE STOCK OWNERSHIP PLAN. Pursuant to the terms of the Advance
Financial Savings Bank employee stock ownership plan, or ESOP, in the event of a
"change in control," which is defined in the ESOP in a manner which would
include the merger, the ESOP will be terminated and any unvested benefits
thereunder shall vest immediately. Pursuant to the merger agreement, Advance
will file with the Internal Revenue Service, or IRS, a request for a
determination letter for termination of the ESOP as of the effective time of the
merger. As soon as practicable after the later of the effective time of the
merger or the receipt of a favorable determination letter for termination of the
ESOP from the Internal Revenue Service, the account balances in the ESOP shall
be distributed to participants and beneficiaries in accordance with applicable
law and the ESOP. In connection with the termination of the ESOP, and prior to
any final distribution to participants, the trustee of the ESOP will utilize
funds in the ESOP suspense account to repay the outstanding loan from Advance to
the ESOP, and any unallocated amounts in the ESOP will be allocated to the
accounts of participating Advance employees in accordance with applicable law
and the ESOP. As of June 30, 2004, the ESOP held 31,116 unallocated shares of
Advance common stock in the suspense account and the outstanding principal
balance of the loan from Advance to the ESOP was $164,000.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that for a
period of six years following the effective time of the merger, Parkvale shall
indemnify and hold harmless each present and former director, officer and
employee of Advance and Advance Financial Savings Bank determined as of the
effective time of the merger against any costs or expenses, judgments, fines,
losses, claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation,
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whether civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the effective time of the merger, whether
asserted or claimed prior to or after the effective time of the merger, arising
in whole or in part out of, or pertaining to (i) the fact that he or she was a
director, officer or employee of Advance or Advance Financial Savings Bank, or
(ii) the merger agreement or any of the transactions contemplated thereby, to
the fullest extent permitted by law.
In addition, the merger agreement provides that Parkvale will maintain
directors' and officers' liability insurance coverage to provide Advance's
directors and officers with coverage for three years following the effective
time of the merger.
Other than as set forth above, no director or executive officer of
Advance has any direct or indirect material interest in the merger, except
insofar as ownership of Advance common stock might be deemed such an interest.
See "Certain Beneficial Owners of Advance Common Stock," beginning on page __.
EMPLOYEE BENEFITS MATTERS
The merger agreement contains agreements of the parties with respect to
various employee matters, which are briefly described below.
PARTICIPATION IN PARKVALE'S EMPLOYEE BENEFIT PLANS. As soon as
practicable after the merger, Parkvale will provide the employees of Advance and
its subsidiaries who remain employed after the merger with coverage under the
employee benefit plans of Parkvale or Parkvale Savings Bank on substantially the
same basis as any employee of Parkvale or Parkvale Savings Bank in a comparable
position; provided that participation in the Parkvale ESOP will not begin until
the 2005 plan year.
Parkvale will use its best efforts to cause the applicable benefits
plans of Parkvale or its affiliates:
o Not to treat any employee of Advance or its subsidiaries as a
"new" employee for purposes of exclusion from any benefit plan
for a pre-existing medical condition;
o To provide full credit towards deductibles under such plans for
any deductibles incurred by any employees upon delivery to
Parkvale of appropriate documentation; and
o To treat service rendered to Advance or any of its subsidiaries
as service rendered to Parkvale for purposes of eligibility to
participate, vesting and for other appropriate benefits,
including applicability of minimum waiting periods for
participation, but not for benefit.
Severance Compensation and Benefits. Parkvale will pay any employee of
Advance or its subsidiaries who is not otherwise covered by a specific
employment, termination, severance or change in control agreement and who is
terminated by Parkvale or its affiliates for reasons other than cause (which
shall mean personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties or willful violation of any law, rule or regulation other than traffic
violations or similar offenses) or who is asked to transfer to another position
or location of Parkvale but chooses not to do so in the one-year period
immediately following the merger, the severance and other benefits set forth
below:
36
o Severance in an amount equal to one weeks' salary multiplied by
the number of full years of service of such terminated Advance
employee to Advance or any subsidiary of Advance with a minimum
payment of one week and a maximum payment of 10 weeks; and
o Continuation of participation in the group health insurance plans
sponsored by Advance or Parkvale without the payment of premiums
for a period of two months.
OUTSTANDING ADVANCE AGREEMENTS. Following the merger, Parkvale and its
affiliates will honor in accordance with their terms all written employment,
benefits, options and other compensation agreements disclosed by Advance to
Parkvale.
EMPLOYEE STOCK OWNERSHIP PLAN. As soon as practicable following the
date of the merger agreement but in no event later than 60 days, Advance shall
cause Advance Financial Savings Bank to file all necessary documents with the
IRS for a determination letter for termination of the Advance Financial Savings
Bank ESOP as of the effective time of the merger. As soon as practicable after
the effective time of the merger and after the receipt of a favorable
determination letter for termination from the Internal Revenue Service, the
account balances in the Advance Financial Savings Bank ESOP will be distributed
to participants and beneficiaries in accordance with applicable law and the
ESOP. The assets of the ESOP attributable to unallocated shares will be utilized
to repay the ESOP debt. Any remaining assets after such debt repayment will be
allocated in accordance with the plan terms pro rata based upon participant
account balances. Prior to the merger, contributions to, and payments on the
loan of, the ESOP will be made consistent with past practices on the regularly
scheduled payment dates.
ADVANCE 401(K) PLAN. Advance is required to take all actions to cause
the Advance Financial Savings Bank Employees' Profit Sharing Plan & Trust to be
terminated prior to the effective time. The accounts of all participants and
beneficiaries in the plan will become fully vested as of its termination date.
As soon as practicable following the date of the merger agreement but in no
event later than 60 days, Advance shall cause Advance Financial Savings Bank to
file all necessary documents with the IRS for a determination letter for
termination of the 401(k) as of the effective time of the merger. As soon as
practicable after the effective time of the merger and after the receipt of a
favorable determination letter for termination from the Internal Revenue
Service, the account balances in the 401(k) will be distributed to participants
and beneficiaries in accordance with applicable law and regulations.
REGULATORY APPROVALS
Completion of the merger is subject to the prior receipt of all
consents or approvals of, or the provision of notices to, or receipt of a waiver
from foreign, federal and state regulatory authorities required to complete the
merger except to the extent that a regulatory authority may waive any such
requirement.
OFFICE OF THRIFT SUPERVISION. The merger will require the submission to
the Office of Thrift Supervision of an application under the Home Owners' Loan
Act. Parkvale has filed the requisite application with the Office of Thrift
Supervision. In reviewing applications under the Home Owners' Loan Act, the
Office of Thrift Supervision considers:
o the financial and managerial resources and future prospects of
the merging and resulting institutions;
37
o the effect of the acquisition on the savings associations and the
insurance risk to the Savings Association Insurance Fund and the
Bank Insurance Fund; and
o the convenience and needs of the community served.
The Office of Thrift Supervision may not approve a transaction:
o The merger would result in a monopoly or would further any
combination or conspiracy to monopolize, or attempt to
monopolize, the business of banking in any part of the United
States; or
o The effect of the merger may be to substantially lessen
competition in any section of the country, or tend to create a
monopoly, or in any manner restrain trade,
unless in each case the Office of Thrift Supervision finds that the
anticompetitive effects of the merger are clearly outweighed by its probable
effect in meeting the convenience and needs of the community.
Applicable regulations require publication of notice of an application
for approval of the merger and an opportunity for the public to comment on the
application in writing and to request a hearing.
FEDERAL DEPOSIT INSURANCE CORPORATION. Completion of the bank merger is
subject to approval from the FDIC. Parkvale has applied to the FDIC pursuant to
Section 18(c) of the Federal Deposit Insurance Act, or FDIA. The period for the
FDIC's review of any proposed acquisition, such as Parkvale's acquisition of
Advance Financial Savings Bank, commences upon receipt by the FDIC of an
application deemed sufficient by the FDIC. Since the companies believe that they
qualify for expedited processing under applicable FDIC regulations, once an
application is deemed sufficient, the FDIC generally will take action on it by
the date that is the latest of (i) 45 days after the FDIC deemed it sufficient,
(ii) 10 days after publication of the last required notice, or (iii) three days
after receipt of the Attorney General's report on competitive factors. In every
case, the FDIC will also consider the financial and managerial resources and
future prospects of the acquiror and the savings association, relevant antitrust
laws and the convenience and needs of the communities to be served. The FDIC
will also consider the effectiveness of Parkvale and Advance in combating money
laundering activities. FDIC regulations provide that an acquiror must publish on
at least three occasions at approximately equal intervals a notification, as
close as practicable to the date on which the application is filed but no
earlier than five days before the application is filed, in the community in
which the main offices of the merging institutions are located. Generally,
within 30 days of the date of first publication (unless extended under
applicable FDIC regulations), anyone may file comments in favor of or in protest
of the application and may also submit such information as he or she deems
relevant. Any transaction approved by the FDIC may not be completed until 30
days after such approval, during which time the U.S. Department of Justice may
challenge such transaction on antitrust grounds and seek divesture of certain
assets and liabilities. With the approval of the FDIC and the U.S. Department of
Justice, the waiting period may be reduced to 15 days.
STATE APPROVALS AND NOTICES. The merger is subject to the prior
approval of the Pennsylvania Department of Banking under Sections 112 and 115 of
the Pennsylvania Banking Code. In determining whether to approve the merger, the
Pennsylvania Department of Banking will consider, among other things, whether
the purposes and probable effects of the merger would be consistent with the
purposes of the Pennsylvania Banking Code, as set forth in Section 103 thereof,
and whether the merger would be prejudicial to the interests of the depositors,
creditors, beneficiaries of fiduciary accounts or
38
stockholders of the institutions involved. Applicable Pennsylvania law also
requires publication of notice of the application for approval of the merger and
an opportunity for the public to comment on the application in writing. The bank
merger is subject to approval by the Pennsylvania Department of Banking under
Section 1609 of the Pennsylvania Banking Code. In determining whether to approve
the bank merger, the Pennsylvania Department of Banking will consider, among
other things, whether the bank merger adequately protects the interests of
depositors, other creditors and stockholders and would be consistent with the
principles of adequate and sound banking practices and the public interest on
the basis of the financial history and condition of the participating banks,
their prospects, the character of their management, the potential effect of the
bank merger on competition and the convenience and needs of the communities
primarily to be served by the participating banks.
STATUS OF APPLICATIONS AND NOTICES. Parkvale and Advance have filed or
will file all required applications, notices and requests for waiver with
applicable regulatory authorities in connection with the merger. Parkvale and
Advance cannot predict, however, whether or when all required regulatory
approvals, consents or waivers will be obtained, what conditions they might
include, or whether they will be received on a timely basis.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material United
States federal income tax consequences of the merger. This discussion is based
upon the Internal Revenue Code of 1986, as amended, final and temporary
regulations promulgated by the United States Treasury Department, judicial
authorities and current rulings and administrative practice of the Internal
Revenue Service, as currently in effect, all of which are subject to change at
any time, possibly with retroactive effect. This discussion assumes that Advance
common stock is held as a capital asset by each stockholder and does not address
all aspects of federal income taxation that might be relevant to particular
stockholders of Advance common stock in light of their status or personal
investment circumstances, such as foreign persons, dealers in securities,
regulated investment companies, life insurance companies, other financial
institutions, tax-exempt organizations, pass-through entities, taxpayers who
hold Advance common stock as part of a "straddle," "hedge" or "conversion
transaction" or who have a "functional currency" other than United States
dollars or individual persons who have received Advance common stock as
compensation or otherwise in connection with the performance of services.
Further, this discussion does not address state, local or foreign tax
consequences of the merger.
For United States federal income tax purposes, the merger will be
treated as an acquisition by Parkvale of all the outstanding stock of Advance.
Each holder of shares of Advance common stock will be treated as exchanging such
shares for cash.
The receipt of cash in exchange for shares of Advance common stock will
be a taxable transaction for federal income tax purposes. Each stockholder's
gain or loss per share will be equal to the difference between the per share
cash consideration and the stockholder's adjusted tax basis per share in Advance
common stock. A stockholder's gain or loss from the exchange will be a capital
gain or loss. This gain or loss will be long-term if the holder has held Advance
common stock for more than 12 months prior to the merger. Under current law, net
long-term capital gains of individuals are subject to a maximum federal income
tax rate of 15%, whereas the maximum federal income tax rate on ordinary income
and net short-term capital gains (i.e., gain on capital assets held for not more
than twelve months) of an individual is currently 35% (not taking into account
any phase-out of tax benefits such as personal exemptions and certain itemized
deductions). For corporations, capital gains and ordinary income are taxed at
the same maximum rate of 35%. Capital losses are currently deductible
39
only to the extent of capital gains plus, in the case of taxpayers other than
corporations, $3,000 of ordinary income ($1,500 in the case of married
individuals filing separate returns). In the case of individuals and other
non-corporation taxpayers, capital losses that are not currently deductible may
be carried forward to other years, subject to certain limitations. In the case
of corporations, capital losses that are not currently deductible may generally
be carried back to each of the three years preceding the loss year and forward
to each of the five years succeeding the loss year, subject to certain
limitations.
An Advance stockholder may be subject to backup withholding at the rate
of 28% with respect to payments of cash consideration received pursuant to the
merger, unless the stockholder (a) provides a correct taxpayer identification
number, or TIN, in the manner required or (b) is a corporation or other exempt
recipient and, when required, demonstrates this fact. To prevent the possibility
of backup federal income tax withholding, each stockholder must provide the
disbursing agent with his, her or its correct TIN by completing a Form W-9 or
Substitute Form W-9. An Advance stockholder who does not provide the disbursing
agent with his, her or its correct TIN may be subject to penalties imposed by
the Internal Revenue Service, as well as backup withholding. Any amount withheld
will be allowed as a refund or credit against the stockholder's federal income
tax liability.
The foregoing discussion is for general information only and is not a
complete description of all of the potential tax consequences that may occur as
a result of the merger. Regardless of your particular situation, you should
consult your own tax advisor regarding the federal tax consequences of the
merger to you, as well as the tax consequences of the merger to you arising
under the laws of any state, local or other jurisdiction, domestic or foreign.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of
accounting under accounting principles generally accepted in the United States
of America. Under this method, Advance's assets and liabilities as of the date
of the merger will be recorded at their respective fair values and added to
those of Parkvale. Any difference between the purchase price for Advance and the
fair value of the identifiable net assets acquired (including core deposit
intangibles) will be recorded as goodwill. In accordance with Financial
Accounting Standards Board Statement No. 142, "Goodwill and Other Intangible
Assets," issued in July 2001, the goodwill resulting from the merger will not be
amortized to expense, but will be subject to at least an annual assessment of
impairment by applying a fair value test. In addition, any core deposit
intangibles recorded by Parkvale in connection with the merger will be amortized
to expense in accordance with the new rules. The financial statements of
Parkvale issued after the merger will reflect the results attributable to the
acquired operations of Advance beginning on the date of completion of the
merger.
STOCKHOLDER AGREEMENTS
In connection with the execution of the merger agreement, each director
and senior officer of Advance entered into a stockholder agreement with Parkvale
Savings Bank in the form attached to the merger agreement. Under these
agreements, these individuals agreed to vote all of their shares of Advance
common stock (excluding shares held in a fiduciary capacity under an ERISA plan)
in favor of the merger of Advance and against the approval of any other
agreement providing for the acquisition of Advance or all or substantially all
of its assets. Pursuant to these agreements, these individuals also agreed not
to transfer their shares of Advance common stock prior to the Annual Meeting of
Stockholders of Advance called to approve and adopt the merger agreement, except
for transfers in
40
limited circumstances. These agreements will remain in effect until the earlier
of the effective time of the merger or the termination of the merger agreement
in accordance with its terms.
DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, if you do not wish to accept the cash payment
provided for in the merger agreement, you have the right to demand an appraisal
of the fair value of your shares conducted by the Delaware Court of Chancery.
ADVANCE STOCKHOLDERS ELECTING TO RECEIVE APPRAISAL RIGHTS MUST COMPLY WITH THE
PROVISIONS OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW, A COPY OF
WHICH IS ATTACHED AS APPENDIX C HERETO, IN ORDER TO PERFECT THEIR RIGHTS.
ADVANCE WILL REQUIRE STRICT COMPLIANCE WITH THE STATUTORY PROCEDURES. The
following is intended as a brief summary of the material provisions of the
Delaware statutory procedures required to be followed by an Advance stockholder
in order to dissent from the merger and perfect the stockholder's appraisal
rights. This summary, however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to Section 262 of the
Delaware General Corporation Law, the full text of which appears in Appendix C
of this proxy statement.
Section 262 requires that Advance notify stockholders not less than
twenty days before the annual meeting to vote on the approval and adoption of
the merger agreement that appraisal rights will be available. A copy of Section
262 must be included with such notice. This proxy statement constitutes
Advance's notice to its stockholders of the availability of appraisal rights in
connection with the merger in compliance with the requirements of Section 262.
If you wish to consider exercising your appraisal rights you should carefully
review the text of Section 262 contained in Appendix C because failure to timely
and properly comply with the requirements of Section 262 will result in the loss
of your rights under Delaware law.
If you elect to demand appraisal of your shares, you must satisfy
all of the following conditions:
o You must deliver to Advance a written demand for appraisal of
your shares of common stock of Advance before December __, 2004,
which is the date the vote on the approval and adoption of the
merger agreement will be initially taken. This written demand for
appraisal must be in addition to and separate from any proxy or
vote abstaining from or against the proposal to approve and adopt
the merger agreement. Voting against or failing to vote for the
proposal to approve and adopt the merger agreement by itself does
not constitute a demand for appraisal within the meaning of
Section 262.
o You must not vote in favor of the approval and adoption of the
merger agreement. An abstention or failure to vote will satisfy
this requirement, but a vote in favor of the approval and
adoption of the merger agreement, by proxy or in person, will
constitute a waiver of your appraisal rights in respect of the
shares so voted and will nullify any previously filed written
demands for appraisal.
o You must continuously hold your shares of Advance through the
effective date of the merger.
If you fail to comply with any of these conditions and the merger is
completed, you will be entitled to receive the cash payment for your shares of
Advance common stock as provided for in the
41
merger agreement, but will have no appraisal rights with respect to your shares
of Advance common stock.
All demands for appraisal should be addressed to Florence K.
McAlpine, Secretary, Advance Financial Bancorp, 1015 Commerce Street, Wellsburg,
West Virginia 26070 before the vote on the approval and adoption of the merger
agreement is taken at the annual meeting, and should be executed by, or on
behalf of, the record holder of the shares of Advance common stock. The demand
must reasonably inform Advance of the identity of the stockholder and the
intention of the stockholder to demand appraisal of his or her shares. TO BE
EFFECTIVE, A DEMAND FOR APPRAISAL BY A HOLDER OF ADVANCE COMMON STOCK MUST BE
MADE BY OR IN THE NAME OF SUCH REGISTERED STOCKHOLDER, FULLY AND CORRECTLY, AS
THE STOCKHOLDER'S NAME APPEARS ON HIS OR HER STOCK CERTIFICATE(S) AND CANNOT BE
MADE BY THE BENEFICIAL OWNER IF HE OR SHE DOES NOT ALSO HOLD THE SHARES OF
RECORD. THE BENEFICIAL HOLDER MUST, IN SUCH CASES, HAVE THE REGISTERED OWNER
SUBMIT THE REQUIRED DEMAND IN RESPECT OF SUCH SHARES.
If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity; and if the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including one for two
or more joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
shares as a nominee for others, may exercise his or her right of appraisal with
respect to the shares held for one or more beneficial owners, while not
exercising this right for other beneficial owners. In such case, the written
demand should state the number of shares as to which appraisal is sought. Where
no number of shares is expressly mentioned, the demand will be presumed to cover
all shares held in the name of such record owner.
If you hold your shares of Advance common stock in a brokerage
account or in other nominee form and you wish to exercise appraisal rights, you
should consult with your broker or such other nominee to determine the
appropriate procedures for the making of a demand for appraisal by such nominee.
Within ten days after the effective date of the merger, Parkvale
must give written notice that the merger has become effective to each Advance
stockholder who has properly filed a written demand for appraisal and who did
not vote in favor of the approval and adoption of the merger agreement. Within
120 days after the effective date, either Parkvale or any stockholder who has
complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the fair value of the
shares held by all stockholders entitled to appraisal. Parkvale does not
presently intend to file such a petition in the event there are dissenting
stockholders and has no obligation to do so. Accordingly, your failure to file
such a petition within the period specified could nullify your previously
written demand for appraisal.
At any time within 60 days after the effective date, any stockholder
who has demanded an appraisal has the right to withdraw the demand and to accept
the cash payment specified by the merger agreement for his or her shares of
Advance common stock. If a petition for appraisal is duly filed by a stockholder
and a copy of the petition is delivered to Parkvale, Parkvale will then be
obligated within 20 days after receiving service of a copy of the petition to
provide the Chancery Court with a duly verified list containing the names and
addresses of all stockholders who have demanded an appraisal of
42
their shares. After notice to dissenting stockholders, the Chancery Court is
empowered to conduct a hearing upon the petition, to determine those
stockholders who have complied with Section 262 and who have become entitled to
the appraisal rights provided thereby. The Chancery Court may require the
stockholders who have demanded payment for their shares to submit their stock
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of
their shares of Advance common stock, the Chancery Court will appraise the
shares, determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest. When the value is determined, the Chancery Court will direct the
payment of such value, with interest thereon accrued during the pendency of the
proceeding if the Chancery Court so determines, to the stockholders entitled to
receive the same, upon surrender by such holders of the certificates
representing such shares. In determining fair value, the Chancery Court is
required to take into account all relevant factors. You should be aware that the
fair value of the shares as determined under Section 262 could be more, the
same, or less than the value that you are entitled to receive pursuant to the
merger agreement.
Costs of the appraisal proceeding may be imposed upon Parkvale and
the stockholders participating in the appraisal proceeding by the Chancery Court
as the Chancery Court deems equitable in the circumstances. Upon the application
of a stockholder, the Chancery Court may order all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts, to be charged pro rata against the value of all shares
entitled to appraisal.
Any stockholder who had demanded appraisal rights will not, after
the effective date of the merger, be entitled to vote shares subject to such
demand for any purpose or to receive payments of dividends or any other
distribution with respect to such shares, other than with respect to payment as
of a record date prior to the effective date; however, if no petition for
appraisal is filed within 120 days after the effective date, or if such
stockholder delivers a written withdrawal of his or her demand for appraisal and
an acceptance of the merger within 60 days after the effective date, then the
right of such stockholder to appraisal will cease and such stockholder will be
entitled to receive the cash payment for shares of his or her Advance common
stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal
made more than 60 days after the effective date of the merger may only be made
with the written approval of the surviving corporation and must, to be
effective, be made within 120 days after the effective date.
In view of the complexity of Section 262, Advance stockholders who
wish to dissent from the merger and pursue appraisal rights may wish to consult
their legal advisors.
43
MARKET FOR COMMON STOCK AND DIVIDENDS
The Advance common stock currently is traded on the NASDAQ SmallCap
Market under the symbol "AFBC."
As of the record date, there were _________ shares of Advance common
stock outstanding, which were held by approximately _______ holders of record.
Such number of stockholders does not reflect the number of individuals or
institutional investors holding stock in nominee name through banks, brokerage
firms and others.
The following table sets forth during the periods indicated the high
and low sales prices of the Advance common stock as reported on the NASDAQ
SmallCap Market and the dividends declared per share of Advance common stock.
Dividends
Date High ($) Low ($) Declared ($)
- -------------------------------------------------------------------------------
July 1, 2002 to September 30, 2002 12.46 11.13 0.08
October 1, 2002 to December 31, 2002 12.59 11.67 0.08
January 1, 2003 to March 31, 2003 14.21 12.69 0.08
April 1, 2003 to June 30, 2003 15.93 14.17 0.10
July 1, 2003 to September 30, 2003 17.33 14.40 0.10
October 1, 2003 to December 31, 2003 21.75 16.70 0.10
January 1, 2004 to March 31, 2004 18.98 17.00 0.10
April 1, 2004 to June 30, 2004 18.41 17.25 0.10
July 1, 2004 to September 30, 2004 26.75 17.25 0.10
October 1, 2004 to November __, 2004 ______ ______ --
The number of stockholders of record of common stock as of November
___, 2004, was approximately ____. This does not reflect the number of persons
or entities who held stock in nominee or "street" name through various brokerage
firms. At November ____, 2004, there were _______ shares outstanding. Advance's
ability to pay dividends to stockholders is dependent upon the dividends it
receives from Advance Financial Savings Bank. Advance Financial Savings Bank may
not declare or pay a cash dividend on any of its stock if the effect thereof
would cause Advance Financial Savings Bank's regulatory capital to be reduced
below (1) the amount required for the liquidation account established in
connection with the conversion, or (2) the regulatory capital requirements
imposed by the OTS.
Pursuant to the merger agreement, Advance may pay a quarterly dividend
of $0.10 per share for each full calendar quarter prior to the effective time
but no dividends may be paid for a partial quarter. See "The Merger -- Conduct
Pending the Merger," on page __.
CERTAIN BENEFICIAL OWNERS OF ADVANCE COMMON STOCK
The following table sets forth the beneficial ownership of the Advance
common stock as of the record date, and certain other information with respect
to (i) the only persons or entities, including any "group" as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, who or which was
known to Advance to be the beneficial owner of more than 5% of the issued and
outstanding Advance common stock on the record date, (ii) each director of
Advance, (iii) certain executive officers of Advance and (iv) all directors and
executive officers of Advance as a group. Unless otherwise indicated, the
address of each such beneficial owner is 1015 Commerce Street, Wellsburg, West
Virginia 26070. Other than as noted below, management knows of no person or
group that owns more than 5% of the outstanding shares of Advance common stock
at the record date.
44
PERCENT OF SHARES OF
AMOUNT AND NATURE OF ADVANCE COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING (%)
- ------------------------------------ -------------------- ---------------
Advance Financial Savings Bank
Employee Stock Ownership Plan ("ESOP")
1015 Commerce Street
Wellsburg, West Virginia 26070(1) 128,550 9.2%
Jeffrey L. Gendell
Tontine Financial Partners, L.P.
Tontine Management, L.L.C.
200 Park Avenue, Suite 3900
New York, New York 10166(2) 138,450 9.9%
J. David Rosenberg
3436 Vista Avenue
Cincinnati, Ohio 45208(3) 85,003 6.1%
Stephen M. Gagliardi
1015 Commerce Street
Wellsburg, West Virginia(4) 76,353 5.3%
DIRECTORS AND EXECUTIVE OFFICERS
Kelly M. Bethel 3,664 (5)(6) *
William E. Watson 35,782 (5)(6) 2.5%
Frank Gary Young 24,532 (5)(6) 1.7%
Walker Peterson Holloway, Jr. 4,814 (5)(6) *
John R. Sperlazza 38,541 (5)(6) 2.7%
Dominic J. Teramana, Jr. 2,314 (5)(6) *
William B. Chesson 18,532 (5)(6) 1.3%
Stephen M. Gagliardi 76,353 (5)(6) 5.3%
All Directors and Executive Officers
As a Group (12 Persons) 263,861 17.7%
_____________________
(1) The ESOP purchased such shares for the exclusive benefit of plan
participants with funds borrowed from Advance. These shares are held in
a suspense account and will be allocated among ESOP participants
annually on the basis of compensation as the ESOP debt is repaid. The
board of directors of Advance Financial Savings Bank has appointed a
committee consisting of non-employee directors Chesson, Holloway,
Sperlazza, Teramana, Watson, Young and Bethel to serve as the ESOP
administrative committee ("ESOP Committee") and to serve as the ESOP
trustees ("ESOP Trustee"). The ESOP Committee or the Board instructs
the ESOP Trustee regarding investment of ESOP plan assets. The ESOP
Trustee must vote all shares allocated to participant accounts under
the ESOP as directed by participants. Unallocated shares and shares for
which no timely voting direction is received, will be voted by the ESOP
Trustee as directed by the ESOP Committee. As of the record date,
97,434 shares have been allocated under the ESOP to participant
accounts.
45
(2) The information as to Jeffrey L. Gendell, Tontine Financial Partners,
L.P., and Tontine Management, L.L.C., (collectively, the "Reporting
Persons"), is derived from an amended Schedule 13G, dated February 6,
2004, which states that the Reporting Persons, through certain of its
affiliates, had shared voting power and shared dispositive power with
regard to 138,450 shares.
(3) The information as to J. David Rosenberg is derived from a Schedule
13G, dated September 26, 2001, which states that J. David Rosenberg has
sole voting and dispositive power with regard to 85,003 shares.
(4) See "Proposal 2 -- Election of Directors."
(5) Excludes 128,550 shares and 14,981 shares of Advance common stock held
under the ESOP and the Restricted Stock Plan ("RSP"), respectively, for
which such individual serves as a member of the ESOP Committee, ESOP
Trust and the RSP Trust. Such individual disclaims beneficial ownership
with respect to shares held in a fiduciary capacity.
(6) The share amounts include shares of Advance common stock that the
following persons may acquire through the exercise of stock options
within 60 days of November ___, 2004: John R. Sperlazza - 9,487 shares,
William B. Chesson - 9,487, Stephen M. Gagliardi - 40,666 shares,
William E. Watson - 9,487 shares, Frank Gary Young - 9,487 shares,
Kelly M. Bethel - 814 shares, Dominic J. Teramana, Jr. - 814 shares,
Walker Peterson Holloway, Jr. - 814 shares and other executive officers
of Advance - 8,750.
* Less than 1% of the Advance common stock outstanding.
PROPOSAL 2: ELECTION OF DIRECTORS
The Certificate of Incorporation requires that directors be divided
into three classes, as nearly equal in number as possible, each class to serve
for a three year period, with approximately one-third of the directors elected
each year. The Board of Directors currently consists of eight members, each of
whom also serves as a director of Advance Financial Savings Bank.
Kelly M. Bethel, William E. Watson and Frank Gary Young (the
"Nominees") have been nominated by the Board of Directors to serve as directors.
The Nominees are currently members of the Board and have been nominated for
three-year terms to expire upon completion of the merger or in 2007 if the
merger is not completed.
The persons named as proxies in the enclosed proxy card intend to vote
for the election of the persons listed below, unless the proxy card is marked to
indicate that such authorization is expressly withheld. Should the Nominees
withdraw or be unable to serve (which the Board of Directors does not expect) or
should any other vacancy occur on the Board of Directors, it is the intention of
the persons named in the enclosed proxy card to vote for the election of such
persons as may be recommended to the Board of Directors by the Nominating
Committee of the Board. If there are no substitute nominees, the size of the
Board of Directors may be reduced.
46
The following table sets forth information with respect to the Nominees
and the other sitting directors, including for each their name, age and the
expiration date of their current term as a director.
Current Term
Name Age(1) Position with Company to Expire
- --------------------------------------------------------------------------------
Kelly M. Bethel 44 Director 2004
William E. Watson 68 Director 2004
Frank Gary Young 66 Director 2004
Walker Peterson Holloway, Jr. 55 Director 2005
John R. Sperlazza 66 Director 2005
Dominic J. Teramana, Jr. 60 Director 2005
William B. Chesson 68 Director 2006
Stephen M. Gagliardi 56 President, Chief Executive Officer 2006
___________________ and Director
(1) As of June 30, 2004
BIOGRAPHICAL INFORMATION
Set forth below is certain information with respect to the directors,
including director nominees and executive officers of Advance. All directors and
executive officers have held their present positions for five years unless
otherwise stated.
KELLY M. BETHEL is the real estate appraiser and president of the
Bethel Agency located in Steubenville, Ohio. Mr. Bethel is a member of the
Steubenville Board of Realtors, the Ohio Association of Realtors and the
National Association of Realtors.
WILLIAM E. WATSON is an attorney in Wellsburg, West Virginia and has
practiced law since 1961. Mr. Watson also serves as counsel for Advance
Financial Savings Bank. He is the chancellor (general counsel) of the West
Virginia Conference United Methodist Church, chairman of the Board of Trustees
of West Virginia Wesleyan College and chairman of the Administrative Board of
Wellsburg United Methodist Church.
FRANK GARY YOUNG is the former director of the Brooke Hills Park in
Wellsburg, West Virginia and is also a member of the board of directors of
Healthways Inc. located in Brooke County, West Virginia. Mr. Young is the former
sheriff of Brooke County and prior to 1980, was the owner of Young's Market.
WALKER PETERSON HOLLOWAY, JR. is a senior vice president of Hazlett,
Burt & Watson, Inc., a regional brokerage headquartered in Wheeling, West
Virginia. He serves on the boards of Oglebay Institute, West Virginia Northern
Community College Foundation, and Tuberculosis Association of
47
Ohio County. He is past president of the Wheeling Rotary Club. Previously he was
a member of West Virginia Aeronautics Commission and the West Virginia Business
Foundation.
JOHN R. SPERLAZZA is retired and was a co-owner of trucking, mining and
coal companies.
DOMINIC J. TERAMANA, JR. is president of Century 21 Teramana-Westling,
Inc. in Steubenville, Ohio and managing officer of Teramana Enterprises and
Hollywood Center, Inc., also in Steubenville, Ohio. He is a member of the
Steubenville Board of Realtors, Steubenville Area Chamber of Commerce, Brooke,
Hancock, and Jefferson Regional Planning Commission, and the Trinity Hospital
Board of Directors.
WILLIAM B. CHESSON is the retired president of the Jefferson County
Chamber of Commerce.
STEPHEN M. GAGLIARDI is the president and chief executive officer of
Advance Financial Savings Bank and Advance. Mr. Gagliardi is trustee and
treasurer of the Christ Episcopal Church of Wellsburg. He is the past director
of the West Virginia Appraiser Licensing and Certification Board and past
president of the Brooke County Rotary and the Brooke County United Way.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
STEVEN D. MARTINO is vice president of Advance and is senior vice
president and chief operating officer of Advance Financial Savings Bank. Mr.
Martino is a member of the board of directors of the Brooke County United Way, a
member of the advisory board of the West Liberty State College School of
Business, and the past president of the Wellsburg Chamber of Commerce. He is
also a real estate appraiser licensed by the State of West Virginia.
STEPHEN M. MAGNONE has been treasurer of Advance and vice president and
chief financial officer of Advance Financial Savings Bank since September 1998.
Prior to September 1998, Mr. Magnone was employed for twelve years with the CPA
firm of S.R. Snodgrass, A.C., and prior to his departure from the firm, Mr.
Magnone held the position of vice president. Mr. Magnone currently serves on the
corporate board of the Weirton Medical Center, Inc. and also as a member of the
medical center's finance committee. He is a past president of the Weirton Rotary
Club and has served on numerous committees of the Weirton Area Chamber of
Commerce. Mr. Magnone has been a CPA since 1986 and holds active memberships in
the American Institute of Certified Public Accountants and the West Virginia
Society of CPAs.
MARC A. DESANTIS is vice president of investor relations of Advance and
is senior vice president of Advance Financial Savings Bank in charge of the
business division. Previous to his appointment as senior vice president of
Advance Financial Savings Bank, Mr. DeSantis served as the vice president of
Branch Administration. Mr. DeSantis is president of the Steubenville Country
Club, is president of the Family Service Association of Steubenville, and serves
as an ambassador for the Jefferson County Chamber of Commerce.
FLORENCE K. MCALPINE is corporate secretary of Advance and is assistant
vice president of operations of Advance Financial Savings Bank.
48
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the cash and
non-cash compensation awarded to or earned by the chief executive officer. No
other executive officer of either Advance Financial Savings Bank or Advance had
a salary and bonus for the three fiscal years then ended, that exceeded $100,000
for services rendered in all capacities to Advance Financial Savings Bank or
Advance.
Annual Compensation
-------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary ($) Bonus ($) Compensation ($)(1) Compensation($)
- ------------------ ---- ---------- --------- ------------------- ---------------
Stephen M. Gagliardi 2004 140,743 15,000 16,613 13,632(2)
President and Chief 2003 142,637 15,000 15,313 13,375
Executive Officer 2002 120,366 12,500 13,893 13,760
____________________________
(1) For 2004, 2003 and 2002, other annual compensation consisted of directors
fees of $13,800, $13,400, and $11,700, respectively, and an automobile
allowance of $2,813, $1,913, and $2,193, respectively.
(2) For the year ended June 30, 2004, consisted of a contribution of $258 for
term life insurance, a matching contribution of $4,515 to the 401(k) plan,
and 1,329 shares of stock allocated under the ESOP at a total cost of
$8,860. (At June 30, 2004, the ESOP shares had an aggregate market value of
$24,228).
OTHER BENEFITS
EMPLOYMENT AGREEMENT. Advance Financial Savings Bank entered into an
employment agreement with Stephen M. Gagliardi, President and Chief Executive
Officer of Advance Financial Savings Bank (the "Agreement"). The Agreement has a
three-year term. Under the Agreement, Mr. Gagliardi's employment may be
terminated by Advance Financial Savings Bank for "just cause" as defined in the
Agreement. If Advance Financial Savings Bank terminates Mr. Gagliardi without
just cause, Mr. Gagliardi will be entitled to a continuation of his salary from
the date of termination through the remaining term of the Agreement but not less
than one year's salary. In the event of the termination of employment in
connection with any change in control of Advance Financial Savings Bank during
the term of the Agreement, Mr. Gagliardi will be paid in a lump sum an amount
equal to 2.99 times his five year average taxable compensation. In the event of
a change in control at June 30, 2004, Mr. Gagliardi would have been entitled to
a lump sum payment of approximately $505,245.
STOCK AWARDS. The following table sets forth information with respect
to previously awarded stock options to purchase the Common Stock granted in 1998
to Mr. Gagliardi and held by him as of June 30, 2004. Advance has not granted to
Mr. Gagliardi any stock appreciation rights.
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Values
-------------------------------------------------------------------------
Number of Securities Value of Unexercised
Shares Acquired Underlying Unexercised In-The-Money Options
on Value Options at FY-End (#) at FY-End ($)
Name Exercise (#) Realized($)(1) Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- ------------ -------------- ------------------------- ----------------------------
Stephen M. Gagliardi -- -- 40,666 / 0 $195,197 / $ 0
_______________________
(1) Based upon an exercise price of $12.50 per share and estimated market price
of $17.30 at June 30, 2004.
49
DIRECTOR COMPENSATION
In the fiscal year ended June 30, 2004 members of the Board of
Directors received a monthly retainer of $700 and a meeting fee of $300 for the
period July to December 2003. For the period January to June 2004, a $500
meeting fee was paid for each board meeting attended and $100 for each committee
meeting attended. For the fiscal year ended June 30, 2004, total fees paid by
Advance Financial Savings Bank to Directors were $125,800.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended June 30, 2004, the Board of Directors held
a total of 14 meetings. No director attended fewer than 75% of the total
meetings of the Board of Directors and committees during the period of his
service. In addition to other committees, as of June 30, 2004, Advance had a
Compensation and Benefits Committee and an Audit Committee.
The Nominating Committee consists of the Board of Directors of Advance.
In selecting the nominees of the Board of Directors, the Nominating Committee is
not required to consider persons recommended by stockholders of Advance. The
Nominating Committee, which is not a standing committee, met once during the
2004 fiscal year.
The Compensation and Benefits Committee is comprised of directors
Bethel, Young, Sperlazza, Chesson, and Watson. This standing committee
establishes Advance Financial Savings Bank's salary budget, director and
committee member fees, and employee benefits provided by Advance Financial
Savings Bank for approval by the Board of Directors. The Committee met once
during the 2004 fiscal year.
The Audit Committee is comprised of directors Chesson, Sperlazza,
Teramana, Holloway and Young. Each of the members of the Audit Committee is
independent in accordance with the listing requirements for Nasdaq Stock Market
issuers. No member of the committee has been designated as an audit committee
financial expert as defined by the regulations of the Securities and Exchange
Commission because none has the qualifications to be so designated. The Board of
Directors has adopted a written audit committee charter, which was attached to
the 2003 proxy statement as an appendix. The Audit Committee is a standing
committee and reports to the Board of Directors. Its primary function is to
assist the board in fulfilling its responsibility to stockholders related to
financial accounting and reporting, the system of internal controls established
by management and the adequacy of auditing relative to these activities. The
Audit Committee met four times during the 2004 fiscal year.
DIRECTOR NOMINATION PROCESS
Advance does not have a standing nominating committee. The independent
directors of Advance serve the functions of a nominating committee by selecting
the management's nominees for election as directors in accordance with Advance's
bylaws. As defined by Nasdaq, each of the eight current directors other than
William E. Watson and Stephen M. Gagliardi, is an independent director. The
independent directors met once during the year ended June 30, 2004 in this
capacity. The board feels it is appropriate for independent directors to serve
this function with out forming a standing committee because Advance has a
relatively small board, making action by committee unnecessary for purposes of
managing nominations. Because there is not a standing committee, Advance does
not have a nominating committee charter.
50
Advance does not pay fees to any third party to identify or evaluate or
assist in identifying or evaluating potential nominees. The process for
identifying and evaluating potential board nominees includes soliciting
recommendations from directors and officers of Advance and Advance Financial
Savings Bank. Additionally, the board will consider persons recommended by
stockholders of Advance in selecting the board's nominees for election. There is
no difference in the manner in which person recommended by directors or officers
versus persons recommended by stockholders are evaluated.
To be considered in the selection of board nominees, recommendations
from stockholders must be received by Advance in writing at least 120 days prior
to the date the proxy statement for the previous year's annual meeting was first
distributed to stockholders. Recommendations should identify the submitting
stockholder, the person recommended for consideration and the reasons the
submitting stockholder believes such person should be considered. Persons
recommended for consideration as board nominees should meet the director
qualification standards set forth in Article III, Sections 15 to 18 of Advance's
bylaws, which require that (i) directors must be stockholders of Advance,
beneficially owning at least 1,000 shares; (ii) directors of Advance must
maintain a permanent primary domicile within sixty miles of Advance's office in
Wellsburg, West Virginia; (iii) directors may not serve as a management official
of another depository institution or depository institution holding company as
those terms are defined in the regulations of the Office of Thrift Supervision;
and (iv) directors must be persons of good character and integrity and must also
have been nominated by persons of good character and integrity. The board also
believes potential directors should be knowledgeable about the business
activities and market areas in which Advance and its subsidiaries engage.
The good character and integrity requirement is embodied in Article
III, Section 18, which states that a person is not eligible to serve as director
if he or she: (1) is under indictment for, or has ever been convicted of a
criminal offense, involving dishonesty or breach of trust and the penalty for
such offense could be imprisonment for more than one year; (2) is a person
against whom a federal or state bank regulatory agency has, within the past ten
years, issued a cease and desist order for conduct involving dishonesty or
breach of trust and that order is final and not subject to appeal; (3) has been
found either by any federal or state regulatory agency whose decision is final
and not subject to appeal, or by a court to have (a) committed a willful
violation of any law, rule or regulation governing banking, securities,
commodities or insurance, or any final cease and desist order issued by a
banking, securities, commodities or insurance regulatory agency; or (b) breached
a fiduciary duty involving personal profit; or (4) has been nominated by a
person who would be disqualified from serving as a director under clauses (1),
(2) or (3).
STOCKHOLDER COMMUNICATIONS
The Board does not have a formal process for stockholders to send
communications to the board. In view of the infrequency of stockholder
communications to the board, the board does not believe that a formal process is
necessary. Written communications received by Advance from stockholders are
shared with the full board no later than the next regularly scheduled board
meeting. The board encourages, but does not require, directors to attend the
annual meeting of stockholders. All of the board members attended the 2003
annual meeting of stockholders.
51
AUDIT COMMITTEE REPORT
REVIEW OF AUDITED FINANCIAL STATEMENTS WITH MANAGEMENT. The Audit
Committee reviewed and discussed the audited financial statement for the year
ended June 30, 2004 with the management of Advance.
REVIEW OF FINANCIAL STATEMENTS AND OTHER MATTERS WITH INDEPENDENT
ACCOUNTANT. The Audit Committee discussed with S.R. Snodgrass, A.C. ("S.R.
Snodgrass"), Advance's independent accountants, the matters required to be
discussed by the statement on Auditing Standards No. 61 (Communications with
Audit Committees), as may be modified or supplemented. The Audit Committee has
received the written disclosures and the letter from S.R. Snodgrass required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as may be modified or supplemented, and has discussed with S.R.
Snodgrass its independence.
RECOMMENDATION THAT FINANCIAL STATEMENTS BE INCLUDED IN ANNUAL REPORT.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in Advance's Annual Report on Form 10-KSB for the year ended June 30,
2004, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE:
William B. Chesson, Chairman
W. Peterson Holloway, Jr.
John R. Sperlazza
Dominic J. Teramana, Jr.
Frank Gary Young
PRINCIPAL ACCOUNTING FEES AND SERVICES
Effective July 30, 2002, the Exchange Act was amended by the
Sarbanes-Oxley Act of 2002 to require all auditing services and non-audit
services provided by an issuer's independent auditor to be approved by the
issuer's audit committee prior to such services being rendered or to be approved
pursuant to pre-approval policies and procedures established by the issuer's
audit committee. Advance's Audit Committee has not established pre-approval
procedures and instead specifically approves each service prior to the
engagement of the auditor for all audit and non-audit services.
All of the services listed below for 2003 and 2004 were approved by the
Audit Committee prior to the service being rendered. There were no services that
were not recognized to be non-audit services at the time of engagement that were
approved after the fact.
AUDIT FEES. The aggregate fees billed by S.R. Snodgrass for
professional services rendered for the audit of Advance's annual consolidated
financial statements and for the review of the consolidated financial statements
included in Advance's Quarterly Reports on Form 10-QSB for the fiscal years
ended June 30, 2004 and 2003 were $34,500 and $32,000, respectively.
AUDIT RELATED FEES. There were no fees billed by S.R. Snodgrass for
assurance and related services related to the performance of the audit of
Advance's annual financial statements and to the review of the financial
statements in Advance's Form 10-QSB filings for the years ended June 30, 2004
and 2003.
52
TAX FEES. The aggregate fees billed by S.R. Snodgrass for professional
services rendered for tax compliance, tax advice and tax planning for the years
ended June 30, 2004 and 2003 were $7,700 and $7,000, respectively. Such
tax-related services consisted in both years of tax return preparation and
consultation.
ALL OTHER FEES. The aggregate fees billed by S.R. Snodgrass for
professional services rendered for services or products other than those listed
under the captions "Audit Fees," "Audit-Related Fees," and "Tax Fees" totaled
$-0- and $4,250, respectively, for the years ended June 30, 2004 and 2003, and
consisted of consultations of tax valuations related to business combinations.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Advance's directors and executive officers to file reports of ownership
and changes in ownership of their equity securities of Advance with the
Securities and Exchange Commission and to furnish Advance with copies of such
reports. To the best of Advance's knowledge, all of the filings by its directors
and executive officers were made on a timely basis during the 2004 fiscal year.
Advance is not aware of other beneficial owners of more than ten percent of the
Advance common stock.
PROPOSAL 3: RATIFICATION OF INDEPENDENT ACCOUNTANTS
S.R. Snodgrass was Advance's independent public accountants for the
2004 fiscal year. The Board of Directors has appointed S.R. Snodgrass to be its
accountants for the fiscal year ending June 30, 2005, subject to ratification by
Advance's stockholders. A representative of S.R. Snodgrass is expected to be
present at the Annual Meeting to respond to stockholders' questions and will
have the opportunity to make a statement if the representative so desires.
RATIFICATION OF THE APPOINTMENT OF THE ACCOUNTANTS REQUIRES THE
AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST BY THE STOCKHOLDERS OF ADVANCE
AT THE MEETING. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF S.R. SNODGRASS AS ADVANCE'S ACCOUNTANTS
FOR THE FISCAL YEAR ENDING JUNE 30, 2005.
SHAREHOLDER PROPOSALS FOR THE 2005 ANNUAL MEETING
Any proposal which a stockholder wishes to have included in the proxy
materials of Advance relating to the next annual meeting of stockholders of
Advance, which will only be held if the merger is not consummated prior thereto,
must be received at the principal executive offices of Advance, 1015 Commerce
Street, Wellsburg, West Virginia 26070, Attention: Florence K. McAlpine,
Secretary, no later than ____________, 2005. If such proposal is in compliance
with all of the requirements of Rule 14a-8 of the Securities Exchange Act of
1934, it will be included in the proxy statement and set forth on the form of
proxy issued for such annual meeting of stockholders. It is urged that any such
proposals be sent certified mail, return receipt requested.
Shareholder proposals which are not submitted for inclusion in
Advance's proxy materials pursuant to Rule 14a-8 of the Exchange Act may be
brought before an annual meeting pursuant to Advance's Bylaws, which provides
that business must be (a) specified in the notice of meeting (or any
53
supplement thereto) given by or at the direction of the board of directors, or
(b) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the corporate
secretary of Advance. To be timely a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of Advance not later
than 90 days prior to the anniversary date of the mailing of proxy materials by
Advance in connection with the immediately preceding annual meeting of
stockholders. A stockholder's notice to the corporate secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the annual
meeting, (b) the name and address, as they appear on Advance's books, of the
stockholder proposing such business, (c) the class and number of shares of
Advance which are beneficially owned by the stockholder and (d) any material
interest of the stockholder in such business. To be timely with respect to the
next annual meeting of stockholders of Advance, a stockholder's notice must be
received by Advance no later than ____________, 2005.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This proxy statement and the documents incorporated by reference into
this proxy statement contain forward-looking statements and information with
respect to the financial condition, results of operations, plans, objectives,
future performance, business and other matters relating to Advance or the merger
that are based on the beliefs of, as well as assumptions made by and information
currently available to, Advance's management. When used in this proxy statement,
the words "anticipate," "believe," "estimate," "expect" and "intend" and words
or phrases of similar import are intended to identify forward-looking
statements. These statements reflect the current view of Advance with respect to
future events and are subject to risks, uncertainties and assumptions that
include, without limitation, the risk factors set forth in Advance's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 2004 and other filings
with the Securities and Exchange Commission, the risk that the merger will not
be completed and risks associated with competitive factors, general economic
conditions, geographic credit concentration, customer relations, interest rate
volatility, governmental regulation and supervision, defaults in the repayment
of loans, changes in volume of loan originations, and changes in industry
practices. Should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described in this proxy statement as anticipated,
believed, estimated, expected or intended.
WHERE YOU CAN FIND MORE INFORMATION
Advance files annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, proxy statements or other information filed by Advance at
the Commission's public reference room in Washington, D.C., which is located at
the following address: Public Reference Room, Judiciary Plaza, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549.
You can request copies of these documents, upon payment of a
duplicating fee, by writing to the Commission. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the Commission's
public reference rooms. Advance's Commission filings are also available to the
public from document retrieval services and at the Commission's Internet website
(http://www.sec.gov). You may also access our filings through the investor
------------------
relations section of our website at http://www.advancefinancial.com.
-------------------------------
54
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of September 1, 2004
("Agreement"), among Parkvale Financial Corporation ("Parkvale"), a Pennsylvania
corporation, Parkvale Savings Bank (the "Bank"), a Pennsylvania chartered
savings bank and a wholly-owned subsidiary of Parkvale, Advance Financial
Bancorp ("Advance"), a Delaware corporation, and Advance Financial Savings Bank
("Advance Savings"), a federally-chartered savings bank and wholly-owned
subsidiary of Advance.
WITNESSETH:
WHEREAS, the Boards of Directors of Parkvale, the Bank, Advance and
Advance Savings have determined that it is in the best interests of their
respective companies and their stockholders to consummate the business
combination transactions provided for herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby; and
WHEREAS, as a condition and inducement to the willingness of Parkvale
to enter into this Agreement, the directors and executive officers of Advance
(the "Advance Stockholders") are concurrently entering into a Stockholder
Agreement with Parkvale (the "Stockholder Agreement"), in substantially the form
attached hereto as Exhibit A, pursuant to which, among other things, such
directors agree to vote their shares of Advance Common Stock (as defined below)
in favor of this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Subject to the terms and conditions of this Agreement
and subject to and in accordance with an Agreement of Merger, a copy of which is
attached hereto as Exhibit B (the "Agreement of Merger"), between Advance and
Advance Acquisition Corp. ("Interim"), a Delaware corporation to be formed as a
wholly-owned subsidiary of Parkvale in connection with the transactions
contemplated hereby, at the Effective Time (as defined in Section 1.05 hereof),
Interim shall be merged with and into Advance in accordance with Section 251 of
the Delaware General Corporation Law ("DGCL") (the "Merger"), with Advance as
the surviving corporation (hereinafter sometimes called the "Surviving
Corporation"). Simultaneously with or immediately following consummation of the
Merger, the parties hereto will cause Advance Savings to be merged with and into
the Bank, with the Bank as the resulting institution (the "Bank Merger").
Simultaneously with
A-1
or as soon as practicable after the Bank Merger, the Surviving Corporation shall
be merged with and liquidated into Parkvale (the "Liquidation") in accordance
with an Agreement and Plan of Liquidation, the form of which is attached hereto
as Exhibit C.
1.02 Effect of the Merger. As of the Effective Time (as defined in
Section 1.05 hereof), the Surviving Corporation shall be considered the same
business and corporate entity as each of Advance and Interim and thereupon and
thereafter, all the property, rights, powers and franchises of each of Advance
and Interim shall vest in the Surviving Corporation and the Surviving
Corporation shall be subject to and be deemed to have assumed all of the debts,
liabilities, obligations and duties of each of Advance and Interim and shall
have succeeded to all of each of their relationships, fiduciary or otherwise, as
fully and to the same extent as if such property rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Corporation. In addition,
any reference to either of Advance or Interim in any contract or document,
whether executed or taking effect before or after the Effective Time, shall be
considered a reference to the Surviving Corporation if not inconsistent with the
other provisions of the contract or document; and any pending action or other
judicial proceeding to which either of Advance or Interim is a party, shall not
be deemed to have abated or to have discontinued by reason of the Merger, but
may be prosecuted to final judgment, order or decree in the same manner as if
the Merger had not been made; or the Surviving Corporation may be substituted as
a party to such action or proceeding, and any judgment, order or decree may be
rendered for or against it that might have been rendered for or against either
of Advance or Interim if the Merger had not occurred. At the Effective Time, the
directors and officers of the Surviving Corporation shall be the persons
designated in Section 1.04.
1.03 Certificate of Incorporation and Bylaws. As of the Effective Time,
the Certificate of Incorporation and Bylaws of Advance shall be the Certificate
of Incorporation and Bylaws of the Surviving Corporation until otherwise amended
as provided by law.
1.04 Directors and Officers. As of the Effective Time, the directors
and officers of Interim shall become the directors and officers of the Surviving
Corporation. The directors of Advance and/or Advance Savings shall resign as of
the Effective Time.
1.05 Effective Time. The Merger shall become effective upon the
occurrence of the filing of a Certificate of Merger with the Secretary of State
of the State of Delaware pursuant to Section 251 of the DGCL, unless a later
date and time is specified as the effective time in such Certificate of Merger
("Effective Time"). A closing (the "Closing") shall take place immediately prior
to the Effective Time at 10:00 a.m., on the fifth business day following the
receipt of all necessary regulatory or governmental approvals and consents and
the expiration of all statutory waiting periods in respect thereof and the
satisfaction or waiver, to the extent permitted hereunder, of the conditions to
the consummation of the Merger specified in Article V of this Agreement (other
than the delivery of certificates and other instruments and documents to be
delivered at the Closing), at the offices of Parkvale or at such other place, at
such other time, or on such other date as the parties may mutually
A-2
agree upon. At the Closing, there shall be delivered to Parkvale, the Bank,
Advance and Advance Savings the certificates and other documents required to be
delivered under Article V hereof.
1.06 Modification of Structure. Notwithstanding any provision of this
Agreement to the contrary, Parkvale, with the prior written consent of Advance,
which consent shall not be unreasonably withheld, may elect, subject to the
filing of all necessary applications and the receipt of all required regulatory
approvals, to modify the structure of the transactions contemplated hereby so
long as (i) there are no adverse federal income tax consequences to the
stockholders of Advance as a result of such modification, (ii) the Merger
Consideration (as defined below) to be paid to holders of Advance Common Stock
(as defined below) under this Agreement is not thereby changed in kind or
reduced in amount solely because of such modification and (iii) such
modification will not be likely to materially delay or jeopardize receipt of any
required regulatory approvals or impair or prevent the satisfaction of any
conditions to the Closing.
1.07 Conversion of Advance Common Stock and Options. As of the
Effective Time, each share of common stock, par value $0.0667 per share, of
Advance (the "Advance Common Stock," which shall include the rights issued by
Advance pursuant to the Rights Agreement dated July 17, 1997, as amended,
between Advance and American Securities Transfer & Trust, Incorporated, as
Rights Agent, relating to Advance's Junior Participating Preferred Stock, Series
A, par value $.10 per share (the "Advance Rights Agreement")), issued and
outstanding immediately prior to the Effective Time (other than shares (i) as to
which dissenters' rights have been asserted and duly perfected in accordance
with the DGCL ("Dissenting Shares"), (ii) under the Advance Restricted Stock
Plan ("RSP") which have not been allocated, and (iii) held by Advance (including
treasury shares) or Parkvale or the Bank other than in a fiduciary capacity,
which shares shall be cancelled) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be cancelled and by operation of law
be converted into and represent the right to receive from Parkvale, $26.00 in
cash (the "Merger Consideration") in accordance with Section 1.08 hereof. At or
immediately prior to the Effective Time, each outstanding option to purchase
Advance Common Stock issued by Advance and as described on Advance Disclosure
Schedule 2.02 ("Advance Option"), shall be cancelled, and each holder of any
such Advance Option, whether or not then vested or exercisable, shall be
entitled to receive from Advance immediately prior to the Effective Time for
each Advance Option an amount determined by multiplying (i) the excess of the
Merger Consideration over the applicable exercise price per share of such
Advance Option by (ii) the number of shares of Advance Common Stock subject to
such Advance Option ("Option Consideration"). The payment of the Option
Consideration referred to in the immediately preceding sentence to holders of
Advance Options shall be subject to the execution by any such holder of such
instruments of cancellation as Advance and Parkvale may reasonably deem
appropriate. Advance may make necessary tax withholdings from the Option
Consideration as it deems appropriate. The aggregate consideration to be paid
for the conversion of all outstanding shares of Advance Common Stock is
hereinafter referred to as the "Aggregate Merger Consideration."
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1.08 Exchange Procedures
(a) Immediately prior to the Effective Time, Parkvale shall deposit in
trust with an exchange agent designated by Parkvale and reasonably acceptable to
Advance (the "Exchange Agent") cash in an amount equal to the Aggregate Merger
Consideration. No later than five business days following the Effective Time,
Parkvale shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of Advance Common Stock a notice and
letter of transmittal (which shall specify that delivery shall be effected and
risk of loss and title to the certificates theretofore representing shares of
Advance Common Stock shall pass only upon proper delivery of such certificates
to the Exchange Agent) advising such holder of the effectiveness of the Merger
and the procedure for surrendering to the Exchange Agent such certificate or
certificates which immediately prior to the Effective Time represented issued
and outstanding shares of Advance Common Stock in exchange for the consideration
set forth in Section 1.07 hereof deliverable in respect thereof pursuant to this
Agreement. Within five business days following receipt of surrendered
certificates and a properly completed letter of transmittal, the Exchange Agent
shall deliver the Merger Consideration to which such former holder is entitled
to each former Advance stockholder. The Exchange Agent shall accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent reasonably may impose to effect an orderly exchange thereof in
accordance with normal exchange practices.
(b) Each outstanding certificate which prior to the Effective Time
represented Advance Common Stock (other than Dissenting Shares) and which is not
surrendered to the Exchange Agent in accordance with the procedures provided for
herein shall, except as otherwise herein provided, until duly surrendered to the
Exchange Agent, be deemed to evidence the right to receive the Merger
Consideration. After the Effective Time, there shall be no further transfer on
the records of Advance of certificates representing shares of Advance Common
Stock and if such certificates are presented to Advance for transfer, they shall
be cancelled against delivery of the Merger Consideration as hereinabove
provided.
(c) Parkvale shall not be obligated to deliver the Merger Consideration
to which a holder of Advance Common Stock would otherwise be entitled as a
result of the Merger until such holder surrenders the certificate or
certificates representing the shares of Advance Common Stock for exchange as
provided in this Section 1.08, or, in lieu thereof, an appropriate affidavit of
loss and indemnity agreement and/or a bond as may be required in each case by
Parkvale. If payment of the Merger Consideration is to be made in a name other
than that in which the certificate evidencing Advance Common Stock surrendered
in exchange therefor is registered, it shall be a condition of the issuance
thereof that the certificate so surrendered shall be properly endorsed or
accompanied by an executed form of assignment separate from the certificate and
otherwise in proper form for transfer and that the person requesting such
payment pay to the Exchange Agent in advance, any transfer or other tax required
by reason of the payment in any name other than that of the registered holder of
the certificate surrendered or otherwise establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
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(d) Any portion of the Aggregate Merger Consideration delivered to the
Exchange Agent by Parkvale pursuant to Section 1.07 that remains unclaimed by
the stockholders of Advance for six months after the Effective Time (as well as
any proceeds from any investment thereof) shall be delivered by the Exchange
Agent to Parkvale. Any stockholders of Advance who have not exchanged their
shares of Advance Common Stock for the Merger Consideration in accordance with
this Agreement shall thereafter look only to Parkvale for the consideration
deliverable in respect of each share of Advance Common Stock such stockholder
holds as determined pursuant to this Agreement without any interest thereon. If
outstanding certificates for shares of Advance Common Stock are not surrendered
or the payment for them is not claimed prior to the date on which payment of the
Merger Consideration would otherwise escheat to or become the property of any
governmental unit or agency, the unclaimed items shall, to the extent permitted
by abandoned property and any other applicable law, become the property of
Parkvale (and to the extent not in its possession shall be delivered to it),
free and clear of all claims or interest of any person previously entitled to
such property. Neither the Exchange Agent nor any party to this Agreement shall
be liable to any holder of stock represented by any certificate for any
consideration paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. Parkvale and the Exchange Agent shall be
entitled to rely upon the stock transfer books of Advance to establish the
identity of those persons entitled to receive the Merger Consideration specified
in this Agreement, which books shall be conclusive with respect thereto. In the
event of a dispute with respect to ownership of stock represented by any
certificate, Parkvale and the Exchange Agent shall be entitled to deposit any
consideration represented thereby in escrow with an independent third party and
thereafter be relieved with respect to any claims thereto.
1.09 Withholding Rights. Parkvale (through the Exchange Agent, if
applicable) shall be entitled to deduct and withhold from any amounts otherwise
payable pursuant to this Agreement to any holder of shares of Advance Common
Stock such amounts as Parkvale is required under the Internal Revenue Code of
1986, as amended ("Code"), or any provision of state, local or foreign tax law
to deduct and withhold with respect to the making of such payment. Any amounts
so withheld shall be withheld in accordance with the Code and other applicable
laws and regulations and shall be treated for all purposes of this Agreement as
having been paid to the holder of Advance Common Stock in respect of which such
deduction and withholding was made by Parkvale.
1.10 Dissenting Shares. Each outstanding share of Advance Common Stock
the holder of which has perfected his right to dissent under the DGCL and has
not effectively withdrawn or lost such rights as of the Effective Time shall not
be converted into or represent a right to receive the Merger Consideration, and
the holder thereof shall be entitled only to such rights as are granted by the
DGCL. Advance shall give Parkvale prompt notice upon receipt by Advance of any
such written demands for payment of their fair value of such shares of Advance
Common Stock and of withdrawals of such demands and any other instruments
provided pursuant to the DGCL (any stockholder duly making such demand being
hereinafter called a "Dissenting Stockholder"). Any payments made in respect of
Dissenting Shares shall be made by Parkvale. If any Dissenting Stockholder shall
effectively withdraw or lose (through failure to perfect or otherwise) his right
to such payment at or prior to the Effective Time, each such holder's shares of
Advance Common
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Stock shall be converted into a right to receive the Merger Consideration in
accordance with the applicable provisions of this Agreement.
1.11 Additional Actions. If at any time after the Effective Time the
Surviving Corporation shall consider that any further assignments or assurances
in law or any other acts are necessary or desirable to (i) vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its rights, title
or interest in, to or under any of the rights, properties or assets of Advance
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger, or (ii) otherwise carry out the purposes of this
Agreement, Advance and its proper officers and directors shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such proper deeds, assignments and assurances in law and to do
all acts necessary or proper to vest, perfect or confirm title to and possession
of such rights, properties or assets in the Surviving Corporation and otherwise
to carry out the purposes of this Agreement; and the proper officers and
directors of the Surviving Corporation are fully authorized in the name of
Advance or otherwise to take any and all such action.
1.12 Interim Shares. Each outstanding share of common stock of Interim,
$.01 par value per share ("Interim Common Stock"), on the Effective Time shall
be converted automatically and without any action on the part of the holder
thereof into an equal number of shares of the Surviving Corporation, which shall
constitute all of the outstanding common stock of the Surviving Corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ADVANCE
AND ADVANCE SAVINGS
References to "Advance Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article II and Article IV hereof, dated as
of the date hereof and referenced to the specific sections and subsections of
this Agreement, which have been delivered by Advance to Parkvale. Advance and
Advance Savings hereby represent and warrant to Parkvale and the Bank as follows
as of the date hereof:
2.01 Corporate Organization.
(a) Advance is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Advance has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect (as defined below).
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Advance is registered as a savings and loan holding company under the Home
Owners' Loan Act ("HOLA"). Advance Disclosure Schedule 2.01(a) sets forth true
and complete copies of the Certificate of Incorporation and Bylaws of Advance as
in effect on the date hereof.
For purposes of this Agreement, the term "Material Adverse Effect",
when applied to a party, shall mean any event, change or occurrence which,
together with any other event, change or occurrence, has a material adverse
impact on (i) the financial position, business, results of operation or
financial performance of such party and their respective subsidiaries, taken as
a whole, or (ii) the ability of such party to perform its obligations under this
Agreement or to consummate the Merger and the other transactions contemplated by
this Agreement in a timely fashion; provided, however, that a "Material Adverse
Effect" shall not be deemed to include the impact of (a) actions or omissions of
a party taken with the prior written consent of the other in contemplation of
the transactions contemplated by this Agreement, (b) changes in banking and
similar laws or regulations of general applicability or interpretations thereof
by courts or governmental authorities, (c) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to banks,
savings associations and bank or thrift holding companies generally, (d) changes
attributable to or resulting from changes in general economic conditions,
including changes in the prevailing level of interest rates, or (e) the Merger
and related expenses associated with the transactions contemplated by this
Agreement.
(b) The only direct or indirect subsidiaries of Advance are Advance
Savings, Advance Financial Service Corporation of West Virginia and Advance
Statutory Trust I (together, the "Advance Subsidiaries"). Advance Disclosure
Schedule 2.01(b)(i) sets forth true and complete copies of the Charter,
Certificate of Incorporation, Bylaws or other governing documents of each of the
Advance Subsidiaries as in effect on the date hereof. Each of the Advance
Subsidiaries (i) is duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of incorporation or formation, (ii) has
the corporate or trust power and authority to own or lease all of its properties
and assets, and (iii) is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed, qualified or in good standing would not have a Material
Adverse Effect. Advance and Advance Savings have satisfied in all material
respects all commitments, financial or otherwise, as may have been agreed upon
with their state and/or federal regulatory agencies. Other than the Advance
Subsidiaries and except as set forth in Advance Disclosure Schedule 2.01(b)(ii),
Advance does not own or control, directly or indirectly, greater than a 5%
equity interest in any corporation, company, association, partnership, joint
venture or other entity. In addition, Advance Disclosure Schedule 2.01(b)(ii)
lists the primary activities engaged in by Advance Financial Service
Corporation.
2.02 Capitalization. The authorized capital stock of Advance consists
of 2,000,000 shares of Advance Common Stock, of which 1,398,373 are issued and
outstanding as of the date hereof, and 500,000 shares of preferred stock, of
which no shares are issued and outstanding. The 1,398,373 shares of Advance
Common Stock issued and outstanding as of the date hereof include 2,931
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unallocated shares of Advance Common Stock held in the RSP, and 12,050 shares of
Advance Common Stock held in the RSP which were surrendered in connection with
the satisfaction of tax withholding obligations by plan participants, which
shares shall be cancelled as of the Effective Time. All issued and outstanding
shares of capital stock of Advance, and all issued and outstanding shares of
capital stock of each of the Advance Subsidiaries, have been duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights.
All of the outstanding shares of capital stock of each of the Advance
Subsidiaries are owned directly or indirectly by Advance free and clear of any
liens, encumbrances, charges, restrictions or rights of third parties of any
kind whatsoever, and, except for (i) an aggregate of 155,859 shares of Advance
Common Stock issuable upon exercise of stock options ("Advance Options") granted
pursuant to Advance's 1998 Stock Option Plan (the "Stock Option Plan") and (ii)
shares of Advance's Junior Participating Preferred Stock, Series A, par value
$.10 per share ("Advance Series A Preferred"), none of Advance or any of the
Advance Subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase or issuance of any shares of capital stock of Advance or any
of the Advance Subsidiaries or any securities representing the right to purchase
or otherwise receive any shares of such capital stock or any securities
convertible into or representing the right to purchase or subscribe for any such
stock. Advance Disclosure Schedule 2.02 lists each Advance Option outstanding as
of the date hereof under the Stock Option Plan, as well as the name of the
grantee, the date of grant, the vesting schedule and the respective exercise
price with respect thereto. No shares of Advance Series A Preferred are issued
and outstanding.
2.03 Authority; No Violation; Rights Agreement.
(a) Subject to the approval of this Agreement, the Agreement of Merger
and the transactions contemplated hereby and thereby by the stockholders of
Advance, and the receipt of all required regulatory approvals and expiration of
any related waiting periods, Advance and Advance Savings have full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby in accordance with the terms hereof. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
boards of directors of Advance and Advance Savings. Except for the adoption by
Advance's stockholders of this Agreement and the Agreement of Merger, no other
corporate proceedings on the part of Advance or Advance Savings are necessary to
consummate the Merger. This Agreement has been duly and validly executed and
delivered by Advance and Advance Savings and constitutes the valid and binding
obligation of Advance and Advance Savings, enforceable against them in
accordance with and subject to its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, and except that the availability of
equitable remedies (including, without limitation, specific performance) is
within the discretion of the appropriate court.
(b) Subject to the approval this Agreement, the Agreement of Merger and
the transactions contemplated hereby and thereby by the stockholders of Advance,
and the receipt of all required regulatory approvals and expiration of any
related waiting periods, Advance has full corporate power
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and authority to execute and deliver the Agreement of Merger and to consummate
the transactions contemplated thereby in accordance with the terms thereof. The
execution and delivery of the Agreement of Merger by Advance and the
consummation of the transactions contemplated thereby have been duly and validly
approved by the Board of Directors of Advance. The Agreement of Merger, upon its
execution and delivery by Advance, will constitute a valid and binding
obligation of Advance, enforceable against it in accordance with and subject to
its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies (including,
without limitation, specific performance) is within the discretion of the
appropriate court.
(c) None of the execution and delivery of this Agreement by Advance and
Advance Savings, the execution and delivery of the Agreement of Merger by
Advance, the consummation by Advance and Advance Savings of the transactions
contemplated hereby in accordance with the terms hereof, the consummation by
Advance of the transactions contemplated by the Agreement of Merger in
accordance with the terms thereof, compliance by Advance and Advance Savings
with any of the terms or provisions hereof or compliance by Advance with any
terms or provisions of the Agreement of Merger, will (i) violate any provision
of the Certificate of Incorporation, Charter, Bylaws or other governing
documents of Advance or any of the Advance Subsidiaries, (ii) assuming that the
consents and approvals set forth below are duly obtained and all required
waiting periods have expired, violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Advance or
any of the Advance Subsidiaries or any of their respective properties or assets,
or (iii) except as disclosed in Advance Disclosure Schedule 2.03(c), violate,
conflict with, result in a breach of any provisions of, constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the performance
required by, or result in the creation of any lien, security interest, charge or
other encumbrance upon any of the properties or assets of Advance or any of the
Advance Subsidiaries under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Advance or any of the Advance
Subsidiaries is a party, or by which any of their respective properties or
assets may be bound or affected, except, with respect to (ii) and (iii) above,
such as individually or in the aggregate will not have a Material Adverse
Effect. Except as set forth in Advance Disclosure Schedule 2.03(c) and for any
consents and approvals of or filings or registrations with or notices to the
Securities and Exchange Commission (the "SEC"), the Secretary of State of the
Commonwealth of Pennsylvania, the Pennsylvania Department of Banking (the
"Department"), the Office of Thrift Supervision ("OTS"), the Federal Deposit
Insurance Corporation (the "FDIC"), the Commissioner of Banking of West Virginia
and the stockholders of Advance, no consents or approvals of or filings or
registrations with or notices to any federal, state, municipal or other
governmental or regulatory commission, board, agency, or non-governmental third
party are required on behalf of Advance or Advance Savings in connection with
(a) the execution and delivery of this Agreement by Advance and Advance Savings
or the execution and delivery of the Agreement of Merger by Advance, and (b) the
completion by Advance and Advance Savings of the transactions contemplated
hereby or the completion by Advance of the transactions contemplated by the
Agreement of Merger.
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(d) Effective prior to execution of this Agreement, Advance has taken
all action necessary to amend the Advance Rights Agreement so that execution of
this Agreement and the Agreement of Merger and consummation of the transactions
contemplated herein and therein, including without limitation consummation of
the Merger pursuant to this Agreement, shall not result in the grant of any
rights to any person under the Advance Rights Agreement or enable or require any
of the preferred share purchase rights thereunder to be exercised, distributed
or triggered. Advance Disclosure Schedule 2.03(d) contains a copy of the
amendment to the Advance Rights Agreement.
2.04 Financial Statements.
(a) Advance has previously delivered to Parkvale copies of the
consolidated balance sheet of Advance as of June 30, 2004 and 2003 and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years ended June 30, 2004, 2003 and 2002, in each case
accompanied by the audit report of S.R. Snodgrass, A.C., independent public
accountants. The consolidated balance sheets of Advance referred to herein, as
well as the financial statements to be delivered pursuant to Section 4.04 hereof
(including the related notes, where applicable), fairly present or will fairly
present, in all material respects, as the case may be, the consolidated
financial condition of Advance as of the respective dates set forth therein, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows (including the related notes, where applicable), fairly present
or will fairly present, as the case may be, the results of the consolidated
income, changes in stockholders' equity and cash flows of Advance for the
respective periods or as of the respective dates set forth therein (it being
understood that Advance's interim financial statements are not audited and are
not prepared with all related notes and are subject to normal year end
adjustments but have been, or will be, prepared in compliance with all
applicable legal and regulatory accounting requirements and reflect all
adjustments which are, in the opinion of Advance, necessary for a fair
presentation of such financial statements).
(b) Each of the financial statements referred to in this Section 2.04
(including the related notes, where applicable) has been prepared in accordance
with generally accepted accounting principles consistently applied during the
periods involved. The books and records of Advance and each of the Advance
Subsidiaries are being maintained in material compliance with applicable legal
and accounting requirements and reflect only actual transactions.
(c) Except to the extent reflected, disclosed or reserved against in
the consolidated financial statements referred to in the first sentence of
Section 2.04(a) or the notes thereto, and except for liabilities incurred since
June 30, 2004 in the ordinary course of business and consistent with past
practice, neither Advance nor any Advance Subsidiary has any obligation or
liability, whether absolute, accrued, contingent or otherwise, material to the
business, results of operations, assets or financial condition of Advance and
the Advance Subsidiaries taken as a whole.
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2.05 Absence of Certain Changes or Events. (a) Except as set forth in
Advance Disclosure Schedule 2.05, since June 30, 2004, (i) Advance and the
Advance Subsidiaries have conducted their businesses in the ordinary and usual
course and (ii) no event has occurred or circumstances arisen that, individually
or in the aggregate, has had or is reasonably likely to have a Material Adverse
Effect.
(b) Except as set forth in Advance Disclosure Schedule 2.05(b), neither
Advance nor any Advance Subsidiary has taken or permitted any of the actions set
forth in Section 4.02 hereof between June 30, 2004 and the date hereof.
2.06 Legal Proceedings. Except as disclosed in Advance Disclosure
Schedule 2.06, neither Advance nor any Advance Subsidiary is a party to any, and
there are no pending or, to the best knowledge of Advance and Advance Savings,
threatened legal, administrative, arbitration or other proceedings, claims,
actions or governmental investigations of any nature against Advance or any
Advance Subsidiary, except such proceedings, claims, actions or governmental
investigations which in the good faith judgment of Advance and Advance Savings
will not have a Material Adverse Effect. Neither Advance nor any Advance
Subsidiary is a party to any order, judgment or decree which has or could
reasonably be expected to have a Material Adverse Effect.
2.07 Taxes and Tax Returns.
(a) Advance and each of the Advance Subsidiaries has (taking into
account any extension of time within which to file which has not expired) timely
filed (and until the Effective Time will so file) all returns, declarations,
reports, information-returns and statements ("Returns") required to be filed or
sent by or with respect to them in respect of any Taxes (as hereinafter
defined), and has duly paid (and until the Effective Time will so pay) all Taxes
due and payable other than Taxes or other charges which (i) are being contested
in good faith (and disclosed in writing to Parkvale) and (ii) have not finally
been determined. Advance and each of the Advance Subsidiaries has established
(and until the Effective Time will establish) on their books and records
reserves that are adequate for the payment of all Taxes not yet due and payable
for periods ending on or prior to the Effective Time, whether or not disputed or
accrued. Except as set forth in Advance Disclosure Schedule 2.07(a), (i) the
federal income tax returns of Advance and each of the Advance Subsidiaries have
been examined by the Internal Revenue Service ("IRS") (or are closed to
examination due to the expiration of the applicable statute of limitations), and
(ii) each of the state income tax returns of Advance and each of the Advance
Subsidiaries have been examined by applicable authorities (or are closed to
examination due to the expiration of the statute of limitations), and in the
case of both (i) and (ii) no deficiencies were asserted as a result of such
examinations which have not been resolved and paid in full. There are no audits
or other administrative or court proceedings presently pending nor any other
disputes pending, or claims asserted for, Taxes or assessments upon Advance or
any of the Advance Subsidiaries, nor has Advance or any of the Advance
Subsidiaries given any currently outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Returns.
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(b) Except as set forth in Advance Disclosure Schedule 2.07(b), neither
Advance nor any Advance Subsidiary (i) has requested any extension of time
within which to file any Return which Return has not since been filed, (ii) is a
party to any agreement providing for the allocation or sharing of Taxes, (iii)
is required to include in income any adjustment pursuant to Section 481(a) of
the Code, by reason of a voluntary change in accounting method initiated by
Advance or any Advance Subsidiary (nor does Advance have any knowledge that the
IRS has proposed any such adjustment or change of accounting method), or (iv)
has filed a consent pursuant to Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply.
(c) Advance and each of the Advance Subsidiaries has withheld and paid
all taxes (as hereinafter defined) required to be paid in connection with
amounts paid to any employee, independent contractor, creditor, stockholder or
other third party.
(d) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment (including
withholding, payroll and employment taxes required to be withheld with respect
to income paid to employees), excise, estimated, severance, stamp, occupation,
property or other taxes, customs duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority (domestic or foreign) upon
Advance or any Advance Subsidiary.
2.08 Employee Benefit Plans.
(a) Each employee benefit plan or arrangement of Advance or any of the
Advance Subsidiaries which is an "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), is listed in Advance Disclosure Schedule 2.08(a) ("Advance Plans").
Advance has previously furnished to Parkvale true and complete copies of each of
the Advance Plans together with (i) Schedule B forms and the most recent
actuarial and financial reports prepared with respect to any qualified Advance
Plans, (ii) the most recent annual reports filed with any government agency for
any qualified or non-qualified plan, and (iii) all rulings and determination
letters and any open requests for rulings or letters that pertain to any
qualified Advance Plans.
(b) Each of the Advance Plans has been operated in compliance in all
material respects with the applicable provisions of ERISA, the Code, all
regulations, rulings and announcements promulgated or issued thereunder, and all
other applicable governmental laws and regulations.
(c) Neither Advance nor any of the Advance Subsidiaries participates in
or has incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multi- employer plan (as such term is defined in
ERISA).
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(d) Except as set forth in Advance Disclosure Schedule 2.08(d), the
present value of all accrued liabilities under each of the Advance Plans subject
to Title IV of ERISA did not, as of the latest valuation date of each such
Advance Plan, exceed the fair market value of the assets of such Advance Plan
allocable to such accrued liabilities, based upon the actuarial and accounting
assumptions currently utilized for such Advance Plans (as of the latest
valuation date).
(e) Neither Advance nor any of the Advance Subsidiaries, nor, to the
best knowledge of Advance and Advance Savings, any trustee, fiduciary or
administrator of an Advance Plan or any trust created thereunder, has engaged in
a "prohibited transaction," as such term is defined in Section 4975 of the Code,
which could subject Advance or any of the Advance Subsidiaries, or, to the best
knowledge of Advance and Advance Savings, any trustee, fiduciary or
administrator thereof, to the tax or penalty on prohibited transactions imposed
by Section 4975.
(f) No Advance Plan or any trust created thereunder has been
terminated, nor have there been any "reportable events" with respect to any
Advance Plan subject to Title IV of ERISA, as that term is defined in Section
4043(b) of ERISA.
(g) No Advance Plan or any trust created thereunder has incurred any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA.
(h) Each of the Advance Plans which is intended to be a qualified plan
under Section 401(a) of the Code received a favorable determination letter
issued by the IRS to the effect that such plan is qualified under Section 401(a)
of the Code and the trust associated with such plan is tax exempt under Section
501 of the Code, and Advance is not aware of any fact or circumstance which
would adversely affect the qualified status of any such plan.
(i) Neither Advance nor any of the Advance Subsidiaries has any
obligations for retiree health and life benefits under any Advance Plans other
than as may be required under Section 4980B of the Code or Part 6 of Title I of
ERISA, or under the continuation of coverage provisions of the laws of any state
or locality. Advance or Advance Savings may amend or terminate any such Advance
Plan at any time without incurring any liability thereunder.
(j) Except as set forth on Advance Disclosure Schedule 2.08(j), none of
the execution of this Agreement, stockholder approval of this Agreement or
consummation of the transactions contemplated hereby will (A) entitle any
employees of Advance or any Advance Subsidiary to severance pay or any increase
in severance pay upon any termination of employment after the date hereof, (B)
accelerate the time of payment or vesting or trigger any payment or funding
(through a grantor trust or otherwise) of compensation or benefits under,
increase the amount payable or trigger any other material obligation pursuant
to, any of the Advance Plans, (C) result in any breach or violation of, or a
default under, any of the Advance Plans or (D) result in any payment that would
be a "parachute payment" to a "disqualified individual" as those terms are
defined in Section 280G of the Code, without regard to whether such payment is
reasonable compensation for personal services performed or to be performed in
the future.
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2.09 Securities Documents and Regulatory Reports.
(a) Advance has previously delivered or made available to Parkvale a
complete copy of, and Advance Disclosure Schedule 2.09(a) lists, each final
registration statement, prospectus, annual, quarterly or current report and
definitive proxy statement or other communication (other than general
advertising materials) filed pursuant to the Securities Act of 1933, as amended
("1933 Act"), or the Securities Exchange Act of 1934, as amended ("1934 Act"),
or mailed by Advance to its stockholders as a class since January 1, 2001. Each
such final registration statement, prospectus, annual, quarterly or current
report and definitive proxy statement or other communication, as of its date,
complied in all material respects with all applicable statutes, rules and
regulations and did not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading; provided that information as of a later date
shall be deemed to modify information as of an earlier date.
(b) Since January 1, 2001, Advance and each of the Advance Subsidiaries
has duly filed with the OTS, in materially correct form the monthly, quarterly
and annual reports required to be filed under applicable laws and regulations,
and Advance has delivered or made available to Parkvale accurate and complete
copies of such reports. Advance Disclosure Schedule 2.09 lists all examinations
of Advance or of the Advance Subsidiaries conducted by the applicable regulatory
authorities since January 1, 2001 and the dates of any responses thereto
submitted by Advance or Advance Savings. In connection with the most recent
examinations of Advance or the Advance Subsidiaries by the applicable regulatory
authorities, neither Advance nor any of the Advance Subsidiaries were required
to correct or change any action, procedure or proceeding which Advance or such
Advance Subsidiaries believe has not been now corrected or changed as required.
2.10 Compliance with Applicable Law.
(a) Advance and each of the Advance Subsidiaries has all permits,
licenses, certificates of authority, orders and approvals of, and have made all
filings, applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies that are required in order to permit them to
carry on their respective businesses as they are presently being conducted and
the absence of which could reasonably be expected to have a Material Adverse
Effect; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect; and to the best knowledge of Advance and
the Advance Subsidiaries, no suspension or cancellation of any of the same is
threatened.
(b) Neither Advance nor any of the Advance Subsidiaries is in violation
of its Certificate of Incorporation, Charter, Bylaws or other governing
documents, or of any applicable federal, state or local law or ordinance or any
order, rule or regulation of any federal, state, local or other governmental
agency or body (including, without limitation, all banking, securities,
municipal securities, safety, health, zoning, anti-discrimination, antitrust,
and wage and hour laws, ordinances, orders, rules and regulations), or in
default with respect to any order, writ, injunction or decree of
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any court, or in default under any order, license, regulation or demand of any
governmental agency, any of which violations or defaults could reasonably be
expected to have a Material Adverse Effect, and neither Advance nor any Advance
Subsidiary has received any notice or communication from any federal, state or
local governmental authority asserting that Advance or any Advance Subsidiary is
in violation of any of the foregoing which violation could reasonably be
expected to have a Material Adverse Effect. Neither Advance nor any Advance
Subsidiary is subject to any regulatory or supervisory cease and desist order,
agreement, written directive, memorandum of understanding or written commitment
(other than those of general applicability to all commercial banks or savings
associations issued by governmental authorities), and neither of them have
received any written communication requesting that it enter into any of the
foregoing.
2.11 Deposit Insurance and Other Regulatory Matters.
(a) The deposit accounts of Advance Savings are insured by the Savings
Association Insurance Fund administered by the Federal Deposit Insurance
Corporation ("FDIC") to the maximum extent permitted by the Federal Deposit
Insurance Act, as amended ("FDIA"), and Advance Savings has paid all premiums
and assessments required by the FDIA and the regulations thereunder.
(b) Advance Savings is a member in good standing of the Federal Home
Loan Bank ("FHLB") of Pittsburgh and owns the requisite amount of stock in the
FHLB of Pittsburgh.
(c) As of the date hereof, neither Advance nor Advance Savings is aware
of any reasons relating to Advance or Advance Savings why all consents and
approvals shall not be received from all regulatory agencies having jurisdiction
over the transactions contemplated by this Agreement as shall be necessary for
consummation of the transactions contemplated hereby. Furthermore, Advance
Savings' most recent Community Reinvestment Act rating is not less than
satisfactory.
2.12 Certain Contracts.
(a) Except as disclosed in Advance Disclosure Schedule 2.12(a), neither
Advance nor any Advance Subsidiary is a party to, is bound by, receives, or is
obligated to pay benefits under, (i) any agreement, arrangement or commitment,
including without limitation, any agreement, indenture or other instrument
relating to the borrowing of money by Advance or any Advance Subsidiary (other
than in the case of deposits, federal funds purchased and securities sold under
agreements to repurchase in the ordinary course of business) or the guarantee by
Advance or any Advance Subsidiary of any obligation, (ii) any agreement,
arrangement or commitment relating to the employment of a consultant or the
employment, election or retention in office of any present or former director or
officer of Advance or any of the Advance Subsidiaries, (iii) any contract,
agreement or understanding with a labor union, (iv) any agreement, arrangement
or understanding pursuant to which any payment (whether of severance pay or
otherwise) became or may become due to any director, officer or employee of
Advance or any of the Advance Subsidiaries upon execution of this Agreement and
the Agreement of Merger or upon or following consummation of the
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transactions contemplated by this Agreement or the Agreement of Merger (either
alone or in connection with the occurrence of any additional acts or events),
(v) any agreement, arrangement or understanding to which Advance or any of the
Advance Subsidiaries is a party or by which any of the same is bound which
limits the freedom of Advance or any of the Advance Subsidiaries to compete in
any line of business or with any person, other than any such limitations set
forth in laws or regulations of general applicability to thrift holding
companies and their subsidiaries, (vi) any assistance agreement, supervisory
agreement, memorandum of understanding, consent order, cease and desist order or
condition of any regulatory order or decree with or by the OTS, the FDIC or any
other regulatory agency, (vii) any other agreement, arrangement or understanding
which would be required to be filed as an exhibit to Advance's annual, quarterly
or current reports under the 1934 Act and which has not been so filed, or (viii)
any other agreement, arrangement or understanding to which Advance or any of the
Advance Subsidiaries is a party and which is material to the business, results
of operations, assets or financial condition of Advance and the Advance
Subsidiaries taken as a whole (excluding loan agreements or agreements relating
to deposit accounts), in each of the foregoing cases whether written or oral.
(b) Neither Advance nor any Advance Subsidiary is in default or in
non-compliance under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by which its
assets, business or operations may be bound or affected, whether entered into in
the ordinary course of business or otherwise and whether written or oral, which
default or non-compliance would have a Material Adverse Effect, and there has
not occurred any event that with the lapse of time or the giving of notice, or
both, would constitute such a default or non-compliance by Advance or any
Advance Subsidiary.
(c) Neither Advance nor any Advance Subsidiary is a party or has agreed
to enter into an exchange traded or over-the-counter equity, interest rate,
foreign exchange or other swap, forward, future, option, cap, floor or collar or
any other contract that is not included in Advance's audited financial
statements at and for the year ended June 30, 2004 and is a derivatives contract
(including various combinations thereof) (each, a "Derivatives Contract") or
owns securities that are referred to generically as "structured notes," "high
risk mortgage derivatives," "capped floating rate notes" or "capped floating
rate mortgage derivatives."
2.13 Properties and Insurance.
(a) All real and personal property owned by Advance or any of the
Advance Subsidiaries or presently used by them in their respective businesses is
in adequate condition (ordinary wear and tear excepted) and is sufficient to
carry on the business of Advance and the Advance Subsidiaries in the ordinary
course of business consistent with their past practices. Advance and each of the
Advance Subsidiaries has good and, as to owned real property, marketable title
to all material assets and properties, whether real or personal, tangible or
intangible, reflected in Advance's consolidated balance sheet as of June 30,
2004, or owned and acquired subsequent thereto (except to the extent that such
assets and properties have been disposed of for fair value in the ordinary
course of business since June 30, 2004), subject to no encumbrances, liens,
mortgages, securities interests or pledges,
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except (i) those items that secure liabilities that are reflected in said
consolidated balance sheet or the notes thereto or have been incurred in the
ordinary course of business after the date of such consolidated balance sheet,
(ii) statutory liens for amounts not yet delinquent or which are being contested
in good faith, (iii) such encumbrances, liens, mortgages, securities interests,
pledges and title imperfections that are not in the aggregate material to the
business, results of operations, assets or financial condition of Advance and
the Advance Subsidiaries taken as a whole, and (iv) with respect to owned real
property, title imperfections noted in title reports prior to the date hereof.
Advance and the Advance Subsidiaries as lessees have the right under valid and
subsisting leases to occupy, use, possess and control all property leased by
them in all material respects as presently occupied, used, possessed and
controlled by Advance and the Advance Subsidiaries and the consummation of the
transactions contemplated hereby and by the Agreement of Merger will not affect
any such right in a way that would have a Material Adverse Effect. Advance
Disclosure Schedule 2.13(a) sets forth an accurate listing of each lease
pursuant to which Advance or any Advance Subsidiary acts as lessor or lessee,
including the expiration date and the terms of any renewal options which relate
to the same.
(b) The business operations and all insurable properties and assets of
Advance and the Advance Subsidiaries are insured for its benefit against all
risks which, in the reasonable judgment of the management of Advance and Advance
Savings, should be insured against, in each case under valid, binding and
enforceable policies or bonds issued by insurers of recognized responsibility,
in such amounts with such deductibles and against such risks and losses as are
in the opinion of the management of Advance and Advance Savings adequate for the
business engaged in by Advance and the Advance Subsidiaries. As of the date
hereof, neither Advance nor any Advance Subsidiary has received any notice of
cancellation or notice of a material amendment of any such insurance policy or
bond or is in default under such policy or bond, no coverage thereunder is being
disputed and all material claims thereunder have been filed in a timely fashion.
2.14 Environmental Matters. For purposes of this Agreement, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource), and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss.9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss.6901, et seq; the Clean Air Act, as amended, 42 U.S.C. ss.7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss.1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. ss.9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.11001, et
seq; the Safe Drinking Water Act, 42 U.S.C.
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ss.300f, et seq; and all comparable state and local laws, and (2) any common law
(including without limitation common law that may impose strict liability) that
may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any regulated material containing any such substance as a
component. Hazardous Substances include without limitation petroleum (including
crude oil or any fraction thereof), asbestos, radioactive material, and
polychlorinated biphenyls.
"Loan Portfolio Properties" means those properties which serve as
collateral for loans owned by Advance or any of the Advance Subsidiaries.
"Other Properties Owned" means those properties owned, leased or
operated by Advance or any of the Advance Subsidiaries which are not Loan
Portfolio Properties.
(a) To the best knowledge of Advance and the Advance Subsidiaries,
neither Advance nor any Advance Subsidiary has been or is in violation of or
liable under any Environmental Law except any such violations or liabilities
which would not singly or in the aggregate have a Material Adverse Effect.
(b) To the best knowledge of Advance and the Advance Subsidiaries, none
of the Loan Portfolio Properties has been or is in violation of, or is the
subject of liability under, any Environmental Law except any such violations or
liabilities which would not, individually or in the aggregate, have a Material
Adverse Effect.
(c) To the best knowledge of Advance and the Advance Subsidiaries, none
of the Other Properties Owned is the subject of liability under or has been or
is in violation of, any Environmental Law.
(d) To the best knowledge of Advance and the Advance Subsidiaries,
there are no actions, suits, demands, notices, claims, investigations or
proceedings pending or threatened relating to the liability of the Loan
Portfolio Properties and Other Properties Owned under any Environmental Law,
including without limitation any notices, demand letters or requests for
information from any federal or state environmental agency relating to any such
liabilities under or violations of Environmental Law.
(e) Advance Disclosure Schedule 2.14(e) lists (i) any environmental
studies which have been undertaken by, or on behalf of, Advance or any Advance
Subsidiary with respect to the Other Properties Owned and (ii) and
correspondence known to Advance or any Advance Subsidiary with respect to the
Other Properties Owned and issues related to Environmental Laws.
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2.15 Allowance for Loan Losses and Real Estate Owned. The allowance for
loan losses reflected on Advance's consolidated balance sheets included in the
consolidated financial statements referred to in Section 2.04 hereof is, in the
opinion of Advance's management, adequate in all material respects as of their
respective dates under the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses on outstanding loans net
of recoveries. The real estate owned reflected on the consolidated balance
sheets included in the consolidated financial statements referred to in Section
2.04 hereof is carried at the lower of cost or fair value, or the lower of cost
or net realizable value, as required by generally accepted accounting
principles.
2.16 Minute Books. Since January 1, 2001, the minute books of Advance
and each Advance Subsidiary contain complete and accurate records of all
meetings and other corporate action held or taken by their respective Boards of
Directors (including committees of their respective Board of Directors) and
stockholders in all material respects.
2.17 Broker Fees. Except for Keefe, Bruyette & Woods, Inc., neither
Advance nor any Advance Subsidiary or any of the respective directors or
officers of such companies has employed any consultant, broker or finder or
incurred any liability for any consultant's, broker's or finder's fees or
commissions in connection with any of the transactions contemplated by this
Agreement.
2.18 Proxy Statement Information. None of the information relating to
it which is included in the proxy statement distributed by Advance to its
stockholders in order to solicit their approval of this Agreement and the
transactions contemplated hereby ("Proxy Statement"), as of the date such Proxy
Statement is mailed to its stockholders and up to and including the date of the
meeting of its stockholders to which such Proxy Statement relates, will contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided that information as of a later
date shall be deemed to modify information as of an earlier date.
2.19 Transactions with Affiliates. Except as set forth in Advance
Disclosure Schedule 2.19, there are no existing or pending transactions, nor are
there any agreements or understandings, with any directors, officers or
employees of Advance or Advance Savings (collectively, "Affiliates"), relating
to, arising from or affecting Advance and Advance Savings, including, without
limitation, any transactions, arrangements or understandings relating to the
purchase or sale of goods or services, the lending of monies or the sale, lease
or use of any assets of Advance or Advance Savings.
2.20 Required Vote; Fairness Opinion.
(a) This Agreement and the transactions contemplated hereby are
required to be approved on behalf of Advance by the affirmative vote of the
holders of at least a majority of the outstanding shares of Advance Common Stock
at a meeting called for such purpose. No other vote of the stockholders of
Advance is required by law, Advance's Certificate of Incorporation,
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Advance's Bylaws or otherwise to approve this Agreement and the transactions
contemplated hereby.
(b) Advance has received a written opinion of Keefe, Bruyette & Woods,
Inc., dated the date hereof, to the effect that, as of such date, the Merger
Consideration to be paid to the stockholders of Advance pursuant to this
Agreement is fair from a financial point of view to such holders of Advance
Common Stock.
2.21 Disclosures. No representation or warranty contained in Article II
of this Agreement, and no statement contained in the Advance Disclosure
Schedules, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARKVALE AND THE BANK
References to "Parkvale Disclosure Schedules" shall mean all of the
disclosure schedules required by this Article III, dated as of the date hereof
and referenced to the specific sections and subsections of Article III of this
Agreement, which have been delivered by Parkvale to Advance. Parkvale and the
Bank hereby represent and warrant to Advance and Advance Savings as follows as
of the date hereof:
3.01 Corporate Organization.
(a) Parkvale is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. Parkvale has
the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted and is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse Effect
(as defined in Section 2.01). Parkvale is registered as a savings and loan
holding company under the HOLA.
(b) The Bank is duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania and is a wholly-owned
subsidiary of Parkvale. The Bank has the corporate power and authority to own or
lease all of its properties and assets and to conduct its business as it is now
being conducted and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed, qualified or in good standing would not have a Material Adverse
Effect.
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(c) At the Effective Time, Interim will be duly organized, validly
existing and in good standing as a corporation under the laws of the State of
Delaware. Interim will not engage in any business other than in connection with
the transactions contemplated by this Agreement and the Agreement of Merger and
Interim will have no material obligations or liabilities other than its
obligations hereunder.
3.02 Authority; No Violation.
(a) Parkvale and the Bank have full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby in accordance with the terms hereof. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly approved by the Board of Directors of Parkvale
and the Bank, and no other corporate proceedings on the part of Parkvale or the
Bank are necessary to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Parkvale and the
Bank and constitutes a valid and binding obligation of Parkvale and the Bank,
enforceable against them in accordance with and subject to its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally, and except that the
availability of equitable remedies (including, without limitation, specific
performance) is within the discretion of the appropriate court.
(b) Prior to the Effective Time, Interim will have full corporate power
and authority to execute and deliver the Agreement of Merger and to consummate
the transactions contemplated thereby in accordance with the terms thereof.
Prior to the Effective Time, the execution and delivery of the Agreement of
Merger by Interim and the consummation of the transactions contemplated thereby
will have been duly and validly approved by the Board of Directors of Interim
and by Parkvale as the sole stockholder of Interim, and no other corporate
proceedings on the part of Interim are necessary to consummate the transactions
so contemplated. The Agreement of Merger, upon its execution and delivery by
Interim, will constitute a valid and binding obligation of Interim, enforceable
against it in accordance with and subject to its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and except that the availability of
equitable remedies (including, without limitation, specific performance) is
within the discretion of the appropriate court.
(c) None of the execution and delivery of this Agreement by Parkvale
and the Bank, the execution and delivery of the Agreement of Merger by Interim,
the consummation by Parkvale and the Bank of the transactions contemplated
hereby in accordance with the terms hereof, the consummation by Interim of the
transactions contemplated by the Agreement of Merger, compliance by Parkvale or
the Bank with any of the terms or provisions hereof or compliance by Interim
with any terms or provisions of the Agreement of Merger, will (i) violate any
provision of the Articles of Incorporation, Charter or Bylaws of Parkvale, the
Bank or Interim, (ii) assuming that the consents and approvals set forth below
are duly obtained, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Parkvale, the Bank or
Interim or any of their
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respective properties or assets, or (iii) violate, conflict with, result in a
breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, security interest, charge or other encumbrance upon any of
the respective properties or assets of Parkvale, the Bank or Interim under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Parkvale, the Bank or Interim is a party, or by which any of their
respective properties or assets may be bound or affected, except, with respect
to (ii) and (iii) above, such as individually or in the aggregate will not have
a Material Adverse Effect. Except for consents and approvals of or filings or
registrations with or notices to the SEC, the Secretary of State of the State of
Delaware, the OTS, the Department, the FDIC and the Commissioner of Banking of
West Virginia, no consents or approvals of or filings or registrations with or
notices to any federal, state, municipal or other governmental or regulatory
commission, board, agency or non-governmental third party are required on behalf
of Parkvale, the Bank and Interim in connection with (a) the execution and
delivery of this Agreement by Parkvale and the Bank or the execution and
delivery of the Agreement of Merger by Interim and (b) the completion by
Parkvale and the Bank of the transactions contemplated hereby or the completion
by Interim of the transactions contemplated by the Agreement of Merger.
(d) As of the date hereof, neither Parkvale nor the Bank is aware of
any reasons relating to Parkvale or the Bank why all consents and approvals
shall not be procured from all regulatory agencies having jurisdiction over the
transactions contemplated by this Agreement as shall be necessary for
consummation of the transactions contemplated hereby. The Bank's most recent
Community Reinvestment Act rating is not less than satisfactory.
3.03 Financial Statements.
(a) Parkvale has previously delivered to Advance copies of the
consolidated statements of financial condition of Parkvale as of June 30, 2004
and 2003, and the related consolidated statements of earnings, comprehensive
income, stockholders' equity and cash flows for the years ended June 30, 2004,
2003 and 2002, accompanied by the audit report of Parente Randolph, LLC,
independent certified public accountants, for fiscal 2004 and by the audit
reports of Ernst & Young, independent certified public accountants, for fiscal
2003 and 2002. The consolidated statements of financial condition of Parkvale
referred to herein, as well as the financial statements to be delivered pursuant
to Section 4.04 hereof (including the related notes, where applicable) fairly
present or will fairly present, as the case may be, the consolidated financial
condition of Parkvale as of the respective dates set forth therein, and the
related consolidated statements of earnings, stockholders' equity and cash flows
(including the related notes, where applicable) fairly present or will fairly
present, as the case may be, the results of the consolidated earnings,
stockholders' equity and cash flows of Parkvale for the respective periods or as
of the respective dates set forth therein (it being understood that Parkvale's
interim financial statements are not audited and are not prepared with all
related notes and are subject to normal year end adjustments but reflect all
adjustments which are, in the opinion of Parkvale, necessary for a fair
presentation of such financial statements).
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(b) Each of the financial statements referred to in this Section 3.03
(including the related notes, where applicable) has been or will be, as the case
may be, prepared in accordance with generally accepted accounting principles
consistently applied during the periods involved. The books and records of
Parkvale and the Bank are being maintained in material compliance with
applicable legal and accounting requirements and reflect only actual
transactions.
(c) Except to the extent reflected, disclosed or reserved against in
the consolidated financial statements referred to in the first sentence of this
Section 3.03 or the notes thereto or liabilities incurred since June 30, 2004 in
the ordinary course of business and consistent with past practice, neither
Parkvale nor the Bank has any obligation or liability, whether absolute,
accrued, contingent or otherwise, which would have a Material Adverse Effect.
3.04 Absence of Certain Changes or Events. Since June 30, 2004, (i)
Parkvale and the Bank have conducted their businesses in the ordinary and usual
course and (ii) no event has occurred or circumstances arisen that, individually
or in the aggregate, has had or is reasonably likely to have a Material Adverse
Effect on Parkvale.
3.05 Ability to Pay Merger Consideration. Parkvale will have available
to it, immediately prior to the Effective Time, sufficient cash to pay the
Aggregate Merger Consideration to stockholders of Advance as set forth in
Section 1.07.
3.06 Legal Proceedings. Neither Parkvale nor the Bank is a party to
any, and there are no pending or, to the best knowledge of Parkvale and the
Bank, threatened legal, administrative, arbitration or other proceedings,
claims, actions or governmental investigations of any nature against Parkvale or
the Bank, except such proceedings, claims actions or governmental investigations
which in the good faith judgment of Parkvale and the Bank are not reasonably
expected to have a Material Adverse Effect. Neither Parkvale nor the Bank is a
party to any order, judgment or decree which has had or is reasonably expected
to have a Material Adverse Effect.
3.07 Broker Fees. Other than fees payable to Boenning & Scattergood,
Inc., neither Parkvale nor the Bank, nor any of their respective directors or
officers, has employed any consultant, broker or finder or incurred any
liability for any consultant's, broker's or finder's fees or commissions in
connection with any of the transactions contemplated by this Agreement.
3.08 Certain Information. None of the information relating to Parkvale
or the Bank supplied or to be supplied by Parkvale to Advance expressly for
inclusion in the Proxy Statement, as of the date such Proxy Statement is mailed
to shareholders of Advance and up to and including the date of the meeting of
shareholders to which such Proxy Statement relates, will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
3.09 Deposit Insurance. The deposit accounts of the Bank are insured by
the Savings Association Insurance Fund administered by the FDIC to the maximum
extent permitted by the
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FDIA, and the Bank has paid all premiums and assessments required by the FDIA
and the regulations thereunder.
3.10 Disclosures. No representation or warranty contained in Article
III of this Agreement, and no statement contained in the Parkvale Disclosure
Schedules, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein not
misleading.
3.11 Compliance with Laws.
(a) Parkvale and the Bank have all permits, licenses, certificates of
authority, orders and approvals of, and have made all filings, applications and
registrations with, federal, state, local and foreign governmental or regulatory
bodies that are required in order to permit them to carry on their respective
businesses as they are presently being conducted and the absence of which could
reasonably be expected to have a Material Adverse Effect; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect; and to the best knowledge of Parkvale and the Bank, no suspension or
cancellation of any of the same is threatened.
(b) Neither Parkvale nor the Bank is in violation of its Articles of
Incorporation, Charter, Bylaws or other governing documents, or of any
applicable federal, state or local law or ordinance or any order, rule or
regulation of any federal, state, local or other governmental agency or body
(including, without limitation, all banking, securities, municipal securities,
safety, health, zoning, anti-discrimination, antitrust, and wage and hour laws,
ordinances, orders, rules and regulations), or in default with respect to any
order, writ, injunction or decree of any court, or in default under any order,
license, regulation or demand of any governmental agency, any of which
violations or defaults could reasonably be expected to have a Material Adverse
Effect, and neither Parkvale nor the Bank has received any notice or
communication from any federal, state or local governmental authority asserting
that Parkvale or the Bank is in violation of any of the foregoing which
violation could reasonably be expected to have a Material Adverse Effect.
Neither Parkvale nor the Bank is subject to any regulatory or supervisory cease
and desist order, agreement, written directive, memorandum of understanding or
written commitment (other than those of general applicability to all commercial
banks issued by governmental authorities), and neither of them have received any
written communication requesting that it enter into any of the foregoing.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Conduct of the Business of Advance and Advance Savings. During the
period from the date hereof to the Effective Time, Advance and each of the
Advance Subsidiaries shall conduct their respective businesses and engage in
transactions permitted hereunder or only in the ordinary course and consistent
with past practice. Advance and each of the Advance Subsidiaries shall use all
reasonable efforts to (i) preserve their business organization intact, (ii) keep
available
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for themselves, Parkvale and the Bank the present services of the employees of
Advance and the Advance Subsidiaries, and (iii) preserve for themselves,
Parkvale and the Bank the goodwill of their customers and others with whom
business relationships exist.
4.02 Negative Covenants. Advance and Advance Savings agree that from
the date hereof to the Effective Time, except as otherwise approved by Parkvale
in writing (which approval shall not be unreasonably withheld) or as permitted
or required by this Agreement, neither Advance nor any Advance Subsidiary will:
(i) amend or change any provision of its Certificate of Incorporation,
Charter, Bylaws or other governing documents unless such amendment shall be
necessary to complete the Merger, Bank Merger or Liquidation;
(ii) change the number of shares of its authorized or issued capital
stock (except upon the exercise of Advance Options as set forth in Advance
Disclosure Schedule 2.02) or issue or grant any option, warrant, call,
commitment, subscription, award, right to purchase or agreement of any character
relating to the authorized or issued capital stock of Advance, or any securities
convertible into shares of such capital stock, or split, combine or reclassify
any shares of its capital stock, or redeem or otherwise acquire any shares of
such capital stock;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
the capital stock of Advance or Advance Savings; provided however, that Advance
shall be permitted to continue to declare and pay its regular quarterly cash
dividends of $0.10 per share for each full calendar quarter prior to the
Effective Time but no dividends shall be declared or paid for any partial
quarterly period;
(iv) grant any severance or termination pay (other than pursuant to
binding contracts, plans, or policies of Advance or Advance Savings in effect on
the date hereof and disclosed to Parkvale on Advance Disclosure Schedule
2.12(a)) to, or enter into or amend any employment, consulting or compensation
agreement with, any of its directors, officers or employees; or award any
increase in compensation or benefits to its directors, officers or employees
except for the payment and accrual of bonus compensation for calendar year 2004
as set forth in Advance Disclosure Schedule 4.02(iv) and in the case of
employees, such as may be granted in the ordinary course of business and
consistent with past practices and policies not to exceed 4.5% of the current
salary of each respective employee;
(v) enter into or modify (except as may be required by applicable law
or as may be required by Section 4.12 hereof), any pension, retirement, stock
option, stock purchase, stock grant, stock appreciation right, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, plan or arrangement, or any
trust agreement related thereto, in respect of any of its directors, officers or
employees; or make any contributions to the employee stock ownership plan of
Advance ("Advance ESOP") or any other
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defined contribution plan or any defined benefit pension or retirement plan
other than in the ordinary course of business consistent with past practice and
policies;
(vi) purchase or otherwise acquire, or sell or otherwise dispose of,
any assets or incur any liabilities other than in the ordinary course of
business consistent with past practice and policies;
(vii) enter into any new capital commitments or make any capital
expenditures in excess of $25,000 each, and $100,000 in the aggregate, other
than pursuant to binding commitments existing on the date hereof and
expenditures necessary to maintain existing assets in good repair;
(viii) file any applications or make any contract with respect to
branching or site location or relocation;
(ix) make any material change in its accounting methods or practices,
other than changes required by changes in applicable laws or regulations or
generally accepted accounting principles, or change any of its methods of
reporting income and deductions for federal income tax purposes, except as
required by changes in applicable laws or regulations;
(x) change its lending, investment, deposit or asset and liability
management or other banking policies in any material respect except as may be
required by applicable law or regulations;
(xi) enter into any futures contract, option or other agreement or take
any other action for purposes of hedging the exposure of its interest-earning
assets and interest-bearing liabilities to changes in market rates of interest;
(xii) incur any liability for borrowed funds (other than in the case of
deposits, federal funds purchased, securities sold under agreements to
repurchase and FHLB advances in the ordinary course of business) or place upon
or permit any lien or encumbrance upon any of its properties or assets, except
liens of the type permitted in the exceptions to Section 2.13(a).
(xiii) acquire in any manner whatsoever (other than to realize upon
collateral for a defaulted loan) any business or entity;
(xiv) engage in any transaction with an Affiliate;
(xv) discharge or satisfy any material lien or encumbrance or pay any
material obligation or liability (absolute or contingent) other than at
scheduled maturity or in the ordinary course of business;
(xvi) enter or agree to enter into any agreement or arrangement
granting any preferential right to purchase any of its assets or rights or
requiring the consent of any party to the transfer and assignment of any such
assets or rights;
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(xvii) invest in any investment securities other than United States
government agencies, mortgage-backed securities and insured certificates of
deposit with a maturity of two (2) years or less (7 years or less for
mortgage-backed securities) or federal funds;
(xviii) make or commit to make any commercial real estate loan to any
one person or entity (together with "affiliates of such person or entity) in
excess of $300,000 in the aggregate;
(xix) take any action that would result in any of its representations
and warranties contained in Article II of this Agreement not being true and
correct in any material respect at the Effective Time; or
(xx) agree to do any of the foregoing.
4.03 No Solicitation. Advance and Advance Savings agree that neither
they nor any of their respective officers or directors shall, and that they
shall direct and use their reasonable best efforts to cause each of their
employees, investment bankers, financial advisors, attorneys, accountants and
other agents and representatives not to, directly or indirectly, initiate,
solicit, encourage, facilitate any inquiries or hold discussions or negotiations
with, or provide any information to, any person, entity or group (other than
Parkvale and the Bank) concerning any merger, sale of substantial assets or
liabilities not in the ordinary course of business, sale of shares of capital
stock or similar transactions involving Advance or any Advance Subsidiary (an
"Acquisition Transaction"); provided, however, that Advance may provide
information in connection with an unsolicited possible Acquisition Transaction
if the Board of Directors of Advance, after receiving advice of counsel,
determines in good faith that the failure to do so would or could reasonably be
expected to constitute a breach of its fiduciary duties under applicable law.
Advance and Advance Savings agree that they will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Transaction.
Advance will promptly communicate to Parkvale the terms of any proposal which it
may receive in respect of any such Acquisition Transaction.
4.04 Current Information. During the period from the date hereof to the
Effective Time, each party will cause one or more of its designated
representatives to confer on a monthly or more frequent basis, as either party
may reasonably request, with representatives of the other party regarding its
business, operations, prospects, assets and financial condition and matters
relating to the completion of the transactions contemplated hereby. Within 25
days after the end of each month, each party shall provide the other party with
a statement of financial condition and a statement of earnings, without related
notes, for such month prepared in accordance with past practices as presented to
its Board of Directors. On a monthly basis, Advance and Advance Savings shall
furnish Parkvale with a report, in such detail as reasonably requested by
Parkvale, indicating all loans which have been originated, purchased or sold
during such period as well as all applications for loans which have been
received for processing ("pipeline report") subject to Advance and Advance
Savings maintaining the confidentiality of the parties associated with such
applications.
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4.05 Access to Properties and Records; Confidentiality.
(a) Advance and each of the Advance Subsidiaries shall permit Parkvale
and its representatives reasonable access, upon advance notice, to their
properties, and shall disclose and make available to Parkvale all books, papers
and records relating to the assets, stock ownership, properties, operations,
obligations and liabilities of Advance and the Advance Subsidiaries, including,
but not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and stockholders' meetings (excluding
minutes related to the transactions contemplated by this Agreement or other
Acquisition Transactions), organizational documents, bylaws, material contracts
and agreements, filings with any regulatory authority, accountants' work papers,
litigation files (except to the extent necessary to preserve attorney-client
privilege), plans affecting employees, and any other business activities or
prospects in which Parkvale may have a reasonable interest. Advance and the
Advance Subsidiaries shall not be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of any customer or would contravene any law, rule, regulation, order or
judgment. Advance and each of the Advance Subsidiaries will use their best
efforts to obtain waivers of any such restriction and in any event make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. Advance and each of the Advance
Subsidiaries shall make its directors, officers, employees and agents and
authorized representatives (including counsel and independent public
accountants) available to confer with Parkvale and its representatives, provided
that such access shall be reasonably related to the transactions contemplated
hereby and not unduly interfere with normal operations.
(b) All information furnished previously in connection with the
transactions contemplated by this Agreement or pursuant hereto shall be treated
as the sole property of the party furnishing the information until consummation
of the Merger and, if such Merger shall not occur, the party receiving the
information shall, at the request of the party which furnished such information,
either return to the party which furnished such information or destroy all
documents or other materials containing, reflecting or referring to such
information; shall use its best effort to keep confidential all such
information; shall use such information only for the purpose of consummating the
transactions contemplated by this Agreement; and shall not directly or
indirectly use such information for any competitive or commercial purposes. The
obligation to keep such information confidential shall continue for three years
from the date the proposed Merger is abandoned but shall not apply to (i) any
information which (A) the party receiving the information can establish by
convincing evidence was already in its possession prior to the disclosure
thereof to it by the party furnishing the information; (B) was then generally
known to the public; (C) became known to the public through no fault of the
party receiving the information; or (D) was disclosed to the party receiving the
information by a third party not bound by an obligation of confidentiality; or
(ii) disclosures pursuant to a legal requirement or in accordance with an order
of a court of competent jurisdiction.
(c) No investigation by either of the parties hereto or their
respective representatives shall affect the representations, warranties,
covenants or agreements of the other party set forth herein.
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4.06 Regulatory Matters.
(a) Each of Advance, Advance Savings, Parkvale and the Bank shall
cooperate with each other and use their best efforts to prepare all necessary
documentation to effect all necessary filings within 30 days from the date of
this Agreement and to obtain all necessary permits, consents, approvals and
authorizations of all third parties and governmental bodies necessary to
consummate the transactions contemplated by this Agreement as soon as
practicable. The parties shall each have the right to review and approve in
advance all information relating to the other, as the case may be, and any of
their respective subsidiaries, which appears in any filing made with, or written
material submitted to, any third party or governmental body in connection with
the transactions contemplated by this Agreement.
(b) Each of the parties will furnish each other with all information
concerning themselves, their directors, officers and stockholders and such other
matters as may be necessary or advisable in connection with any statement or
application made by or on behalf of them to any governmental body in connection
with the Merger and the other transactions, applications or filings contemplated
by this Agreement.
(c) Each of the parties will promptly furnish each other with copies of
written communications received by them from, or delivered by any of the
foregoing to, any governmental body in connection with the Merger and the other
transactions, applications or filings contemplated by this Agreement.
(d) Each of Advance and Parkvale agrees that if such party shall become
aware prior to the mailing date of the Proxy Statement of any information
furnished by such party that would cause any of the statements in the Proxy
Statement to be false or misleading with respect to any material fact, or to
omit to state any material fact necessary to make the statements therein not
false or misleading, to promptly inform the other parties thereof and to take
the necessary steps to correct the Proxy Statement.
4.07 Approval of Stockholders. Advance will (a) take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
stockholders as soon as reasonably practicable, but in no event later than
December 22, 2004, for the purposes of securing the adoption of such
stockholders of this Agreement and the Agreement of Merger, provided that
Advance shall not be required to hold the meeting by such date if the SEC
selects the Proxy Statement for review and delays in obtaining SEC clearance of
the Proxy Statement preclude the Proxy Statement from being mailed in a timely
manner prior to such date, (b) recommend to its stockholders the approval of
this Agreement and the Agreement of Merger and the transactions contemplated
hereby and thereby, and use its best efforts to obtain, as promptly as
practicable, such approvals, provided, however, that the Board of Directors of
Advance may fail to make such recommendation, or withdraw, modify or change any
such recommendation, if such Board of Directors, after having consulted with and
considered the advice of outside counsel, has determined in good faith that the
making of such recommendation or the failure to withdraw, modify or change such
recommendation, would or could
A-29
reasonably be expected to constitute a breach of the fiduciary duties of such
directors under applicable law, and (c) cooperate and consult with Parkvale and
the Bank with respect to the foregoing matters. Notwithstanding anything to the
contrary herein, this Agreement and the Agreement of Merger shall be submitted
to the Advance stockholders at a duly called meeting of stockholders for the
purpose of adopting this Agreement and the Agreement of Merger and nothing
herein shall be deemed to relieve Advance of such obligation.
4.08 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all reasonable action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
satisfy the conditions to closing contained herein and to consummate and make
effective the transactions contemplated by this Agreement and the Agreement of
Merger. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall take all such
necessary action. Nothing in this section shall be construed to require any
party to participate in any threatened or actual legal, administrative or other
proceedings (other than proceedings, actions or investigations to which it is a
party or subject or threatened to be made a party or subject) in connection with
consummation of the transactions contemplated by this Agreement unless such
party shall consent in advance and in writing to such participation and the
other party agrees to reimburse and indemnify such party for and against any and
all costs and damages related thereto.
4.09 Disclosure Supplements. From time to time prior to the Effective
Time, each party will promptly supplement or amend its respective Disclosure
Schedules delivered pursuant hereto with respect to any matter hereafter arising
which, if existing, occurring or known as of the date hereof, would have been
required to be set forth or described in such Schedules or which is necessary to
correct any information in such Schedules which has been rendered inaccurate
thereby. No supplement or amendment to such Schedules shall have any effect for
the purpose of determining satisfaction of the conditions set forth in Article V
or the compliance by Advance and the Advance Subsidiaries with the covenants set
forth in Section 4.01 hereof.
4.10 Public Announcements. The parties hereto shall approve in advance
the substance of and cooperate with each other in the development and
distribution of all news releases and other public disclosures with respect to
this Agreement or any of the transactions contemplated hereby, except as may be
otherwise required by law or regulation and as to which the parties releasing
such information have used their best efforts to discuss with the other parties
in advance.
4.11 Failure to Fulfill Conditions. In the event that either of the
parties hereto determines that a condition to its respective obligations to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to December 31, 2004 and that it will not waive that condition, it will promptly
notify the other party. Parkvale and Advance will promptly inform the other of
any facts applicable to them, or their respective directors or officers, that
would be likely to prevent or
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materially delay approval of the Merger by any governmental authority or which
would otherwise prevent or materially delay completion of the Merger.
4.12 Certain Post-Merger Agreements.
The parties hereto agree to the following arrangements following the
Effective Time:
(a) Transferred Employees. Subject to the provisions of this Section
4.12, all employees immediately prior to the Effective Time who are employed by
Parkvale or the Bank immediately following the Effective Time ("Transferred
Employees") will be covered by the employee benefit plans of Parkvale and/or the
Bank on substantially the same basis as any employee of Parkvale and/or the Bank
in a comparable position. Notwithstanding the foregoing, Parkvale may determine
to continue any of the Advance Plans for Transferred Employees in lieu of
offering participation in the benefit plans of Parkvale and/or the Bank
providing similar benefits (e.g., medical and hospitalization benefits), to
terminate or suspend any of the Advance Plans, or to merge any such Benefits
Plans with the benefit plans of Parkvale and/or the Bank, provided the result is
the provision of benefits to Transferred Employees that are substantially
similar to the benefits provided to the employees of Parkvale and/or the Bank
generally. Except as specifically provided in this Section 4.12 and as otherwise
prohibited by law, Transferred Employees service with Advance or Advance Savings
shall be recognized as service with Parkvale or the Bank for purposes of
eligibility to participate and vesting, if applicable (but not for purposes of
benefit accrual) under the benefit plans of Parkvale and/or the Bank, subject to
applicable break-in-service rules. However, notwithstanding anything to the
contrary herein, Transferred Employees shall not be eligible to participate in
the Parkvale Financial Corporation Employee Stock Ownership Plan until the plan
year commencing in 2005. Notwithstanding anything herein to the contrary, after
the Effective Time, (x) any amendment to, or grant of additional benefits under,
any Advance Plan, including stock based plans (but not including the Advance
ESOP or Advance 401(k) plan), which continues to exist subsequent to the
Effective Time, shall require the prior consent of Parkvale, and (y) Parkvale
may cause any of the Advance Plans which continue to exist, including stock
based plans, to be amended in order to provide that employees of Parkvale or the
Bank may be participants in such plans.
(b) Health Plans. Parkvale will use (i) its best efforts to cause any
pre-existing condition, limitation or exclusion in its medical, long-term
disability and life insurance plans to not apply to Transferred Employees or
their covered dependents who are covered under a medical or hospitalization
indemnity plan maintained by Advance or Advance Savings on the Effective Time
and who then change coverage to Parkvale's or the Bank's medical or
hospitalization indemnity health plan at the time such Transferred Employees are
first given the option to enroll and (ii) honor under such plans any deductibles
and annual out-of-pocket contributions incurred by the Transferred Employees
during the calendar year prior to the Effective Time.
(c) Advance ESOP. Advance shall take all necessary action to cause the
Advance ESOP to be terminated as of the Effective Time. The aggregate Merger
Consideration received by the Advance ESOP trustee in connection with the Merger
with respect to the unallocated shares of
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Advance Common Stock shall be first applied by the Advance ESOP trustee to the
full repayment of the Advance ESOP loan. The balance of the Merger Consideration
(if any) received by the Advance ESOP trustee with respect to the unallocated
shares of Advance Common Stock shall be allocated as earnings to the accounts of
all participants in the Advance ESOP who have accounts remaining under the
Advance ESOP (whether or not such participants are then actively employed) and
beneficiaries in proportion to the account balances of such participants and
beneficiaries, in accordance with the Advance ESOP's terms and conditions in
effect as of the date of this Agreement, to the maximum extent permitted under
the Code and applicable law, except as set forth in Advance Disclosure Schedule
4.12(c). The accounts of all participants and beneficiaries in the Advance ESOP
immediately prior to the Effective Time shall become fully vested as of the
Effective Time. As soon as practicable after the date hereof, but in no event
later than 60 days after the date of this Agreement, Advance shall file or cause
to be filed all necessary documents with the IRS for a determination letter for
termination of the Advance ESOP as of the Effective Time, with a copy to be
provided to Parkvale and its counsel no later than five days prior to its
filing. As soon as practicable after the later of the Effective Time or the
receipt of a favorable determination letter for termination from the IRS, the
account balances in the Advance ESOP shall be distributed to participants and
beneficiaries or transferred to an eligible individual retirement account as a
participant or beneficiary may direct. Prior to the Effective Time, no
prepayments shall be made on the Advance ESOP loan and contributions to the
Advance ESOP and payments on the Advance ESOP loan shall be made consistent with
past practices on the regularly scheduled payment dates.
(d) Advance 401(k) Plan. Advance shall take all necessary action to
cause the Advance Financial Savings Bank Employee's Profit Sharing Plan & Trust
("Advance 401(k) Plan") to be terminated prior to the Effective Time
("Termination Date"). The accounts of all participants and beneficiaries in the
Advance 401(k) Plan shall become fully vested as of the Termination Date. As
soon as practicable after the date hereof, but in no event later than 60 days
after the date of this Agreement, Advance shall file or cause to be filed all
necessary documents with the IRS for a determination letter for termination of
the Advance 401(k) Plan as of the Termination Date, with a copy to be provided
to Parkvale and its counsel no later than five days prior to its filling. As
soon as practicable after the later of the Termination Date or the receipt of a
favorable determination letter for termination from the IRS, the account
balances in the Advance 401(k) Plan shall be distributed as a participant or
beneficiary may direct, consistent with applicable laws and regulations.
(e) Existing Employment Agreements. In satisfaction of the obligations
of Advance Savings under its employment agreement with Mr. Gagliardi,
concurrently with the execution of this Agreement Parkvale, Advance and Advance
Savings shall enter into a Termination and Release Agreement with Stephen M.
Gagliardi as set forth in Exhibit D hereto. Parkvale shall honor the other
employment agreements of Advance Savings, in effect as of the date of this
Agreement, each of which is disclosed on Advance Disclosure Schedule 4.12(d),
which schedule describes and quantifies in reasonable detail the maximum amount
of payments and benefits which could become due and payable to each such person
(assuming the Merger is consummated on or before December 31, 2004) under each
of the employment agreements as a result of a termination of employment and/or a
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change in control of Advance or Advance Savings. As of the date hereof, the Bank
shall enter into an Addendum to each such agreement in the form and substance as
set forth at Exhibit F hereto.
(f) Consulting and Noncompetition Agreement. Concurrently with the
execution of this Agreement, Parkvale shall enter into a Consulting and
Noncompetition Agreement with Stephen M. Gagliardi as set forth in Exhibit E
hereto.
(g) Employee Severance. Any person who is currently serving as an
employee of either Advance or Advance Savings and continues as such immediately
prior to the Effective Time (other than those employees covered by a written
employment or change in control agreement set forth in Advance Disclosure
Schedule 2.08(j)) whose employment is discontinued by Parkvale or the Bank
(including those employees who are asked to transfer to other positions and/or
locations of Parkvale or the Bank and choose not to do so) within one year after
the Effective Time (unless termination of such employment is for Cause (as
defined below)) shall be entitled to a severance payment from the Bank in an
amount equal to one week's salary for each year of service at Advance or Advance
Savings, with a minimum benefit of one week of salary and a maximum benefit of
ten (10) weeks of salary and the continuation of participation in the group
health insurance plans sponsored by Parkvale or Advance without the payment of
premiums by the former employee or dependents for a period of two months. For
purposes of this Section 4.12(f), "Cause" shall mean termination because of the
employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses). Advance and Advance Savings agree to terminate
their Change in Control Severance Pay Plan prior to the Effective Time. With
respect to accrued but unused sick leave and vacation pay as of December 31,
2004, the employees of Advance and Advance Savings will receive the benefit of
such leave in accordance with current Advance policies. In periods subsequent to
December 31, 2004, the employees of Advance and Advance Savings will receive
accruals for unused sick leave and accruals and payouts for vacation pay based
upon the policies of the Bank.
(h) Indemnification. Parkvale shall indemnify and hold harmless each
present and former director, officer and employee of Advance and Advance Savings
determined as of the Effective Time (the "Indemnified Parties") against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time (collectively, "Claims"), to
the fullest extent to which such Indemnified Parties were entitled under
Delaware law or under the Certificate of Incorporation and Bylaws of Advance or
Advance Savings as in effect on the date hereof, for a period of six years
following the Effective Time; provided, however, that all rights to
indemnification in respect to any claim asserted or made within such period
shall continue until the final disposition of such claim. Indemnified Parties
shall be third-party beneficiaries to this Section 4.12(g).
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Any Indemnified Party wishing to claim indemnification under this
Section 4.12(g), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Parkvale, but the failure to so notify
shall not relieve Parkvale of any liability it may have to such Indemnified
Party if such failure does not materially prejudice Parkvale. In the event of
any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) Parkvale shall have the right to assume
the defense thereof and Parkvale shall not be liable to such Indemnified Parties
for any legal expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the defense thereof,
except that if Parkvale elects not to assume such defense or if counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between Parkvale and the Indemnified Parties, the Indemnified Parties
may retain counsel which is reasonably satisfactory to Parkvale, and Parkvale
shall pay, promptly as statements therefor are received, the reasonable fees and
expenses of such counsel for the Indemnified Parties (which may not exceed one
firm in any jurisdiction unless the use of one counsel for such Indemnified
Parties would present such counsel with a conflict of interest), (ii) the
Indemnified Parties will cooperate in the defense of any such matter, and (iii)
Parkvale shall not be liable for any settlement effected without its prior
written consent, which consent shall not be withheld unreasonably.
In the event that Parkvale or any of its respective successors or
assigns (i) consolidates with or merges into any other entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any entity, then, and in each such case, the successors and assigns of such
entity shall assume the obligations set forth in this Section 4.12(g), which
obligations are expressly intended to be for the irrevocable benefit of, and
shall be enforceable by, each of the Indemnified Parties.
(i) Insurance. Parkvale and the Bank shall maintain a directors' and
officers' liability insurance policy covering the Indemnified Parties in
connection with any Claims for a period of three (3) years after the Effective
Time, provided that the total premium cost of such coverage shall not exceed
175% of the current premium paid by Advance (the "Insurance Amount"). If the
cost of the coverage exceeds the Insurance Amount, then Parkvale and the Bank
shall use their reasonable best efforts to obtain as much comparable insurance
as is available for the Insurance Amount.
(j) Payout of Options. In accordance with Section 1.07 of the
Agreement, Advance or Advance Savings will pay out, as of the Effective Time,
the amounts necessary to settle the awards under the Advance Stock Option Plan
with the holders of such awards to execute releases in a form satisfactory to
Parkvale.
(k) Advisory Board. Subject to the fiduciary duties of the Board of
Directors of Parkvale, each director of Advance as of the date hereof shall be
requested by Parkvale to serve as members of an Advisory Board for three
consecutive one-year terms following the Effective Time. The members of the
Advisory Board shall meet quarterly and be paid a fee of $275 per meeting
attended. Within 12 months following the Effective Time, the Advisory Board
shall nominate one of its members to become a director of Parkvale. The
Nominating Committee of the Board of Directors
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of Parkvale shall consider such nomination as well as the qualifications of the
other members of the Advisory Board and shall recommend that one of the members
of the Advisory Board be appointed to the Parkvale Board of Directors on or
shortly after the one-year anniversary of the Effective Time. After considering
the foregoing nomination and recommendation, the Parkvale Board of Directors
shall select and appoint a member of the Advisory Board as a director of
Parkvale. Following such appointment, the newly appointed director shall no
longer serve as a member of the Advisory Board.
(l) Parkvale shall honor the obligations to retired directors of
Advance Savings as set forth in Advance Disclosure Schedule 2.12(a). No other
directors shall become entitled to benefits under the Retirement Policy.
4.13. Certain Policies. Prior to the Effective Time, each of Advance
and Advance Savings shall, consistent with generally accepted accounting
principles, the rules and regulations of the SEC and applicable banking laws and
regulations, modify or change its loan, real estate owned, accrual, reserve,
tax, litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) so as to be applied on a basis that is
consistent with that of Parkvale and the Bank; provided, however, that no such
modifications or changes need be made prior to the satisfaction of the
conditions set forth in Section 5.02; and further provided that in any event, no
accrual or reserve made by Advance or Advance Savings pursuant to this Section
4.13 shall constitute or be deemed to be a Material Adverse Effect or breach,
violation of or failure to satisfy any representation, warranty, covenant,
agreement, condition or other provision of this Agreement or otherwise be
considered in determining whether any such Material Adverse Effect or breach,
violation or failure to satisfy shall have occurred; and provided, further, that
any such changes shall not result in Advance's filing of materially inconsistent
documents or reports with the Securities and Exchange Commission or any other
governmental authority. The recording of any such adjustments shall not be
deemed to imply any misstatement of previously furnished financial statements or
information and shall not be construed as concurrence of Advance or its
management with any such adjustments.
4.14 Advance Rights Plan. If requested by Parkvale, Advance shall cause
the preferred share purchase rights issued pursuant to the Advance Rights Plan
to be redeemed or terminated and shall cause the Advance Rights Plan to be
terminated, in each case effective at or prior to the Effective Time and without
material cost to Parkvale.
4.15 Amendment to Advance's Bylaws. Prior to the Effective time, the
Board of Directors of Advance shall amend the Bylaws of Advance to delete
Sections 15, 16 and 17 of Article III of the Bylaws.
4.16 Supplemental Indenture. Prior to the Effective Time, Advance shall
take all actions necessary to enter into a supplemental indenture with the
Trustee of the Indenture dated December 19, 2002 for Advance's outstanding
floating rate junior subordinated deferrable interest debentures to evidence the
succession of Parkvale as of the Effective Time. The form of the supplemental
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indenture shall be reasonably acceptable to Parkvale, and Parkvale agrees to
assume the covenants, agreements and obligations of Advance under such
Indenture.
ARTICLE V
CLOSING CONDITIONS
5.01 Conditions to the Parties' Obligations Under This Agreement. The
respective obligations of the parties under this Agreement shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) All necessary regulatory, governmental or third party approvals,
waivers, clearances, authorizations and consents (including without limitation
the requisite approval and/or non- objection, if any, of the Department and the
OTS required to consummate the transactions contemplated hereby) shall have been
obtained without any non-standard term or condition which, in the reasonable
opinion of Parkvale, would materially impair the value of Advance and the
Advance Subsidiaries taken as a whole to Parkvale and the Bank; all conditions
required to be satisfied prior to the Effective Time by the terms of such
approvals and consents shall have been satisfied; and all waiting periods in
respect thereof shall have expired.
(b) All corporate action necessary to authorize the execution and
delivery of this Agreement and the Agreement of Merger and consummation of the
transactions contemplated hereby and thereby shall have been duly and validly
taken by Parkvale, the Bank, Interim, Advance and Advance Savings, including
approval by the requisite vote of the stockholders of Advance of this Agreement
and the Agreement of Merger.
(c) No order, judgment or decree shall be outstanding against a party
hereto or a third party that would have the effect of preventing completion of
the Merger; no suit, action or other proceeding shall be pending or threatened
by any governmental body in which it is sought to restrain or prohibit the
Merger; and no suit, action or other proceeding shall be pending before any
court or governmental agency in which it is sought to restrain or prohibit the
Merger or obtain other substantial monetary or other relief against one or more
of the parties hereto in connection with this Agreement and which Parkvale, the
Bank, Advance or Advance Savings determines in good faith, based upon the advice
of their respective counsel, makes it inadvisable to proceed with the Merger
because any such suit, action or proceeding has a significant potential to be
resolved in such a way as to deprive the party electing not to proceed of any of
the material benefits to it of the Merger.
5.02. Conditions to the Obligations of Parkvale and the Bank Under This
Agreement. The obligations of Parkvale and the Bank under this Agreement shall
be further subject to the satisfaction, at or prior to the Effective Time, of
the following conditions, any one or more of which may be waived by Parkvale and
the Bank to the extent permitted by law:
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(a) Each of the obligations of Advance and Advance Savings required to
be performed by them at or prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of Advance and Advance Savings
contained in this Agreement shall have been true and correct as of the date
hereof and as of the Effective Time as though made at and as of the Effective
Time, except (i) as to any representation or warranty which specifically relates
to an earlier date, or (ii) where the facts which caused the failure of any
representation or warranty to be so true and correct would not, either
individually or in the aggregate, constitute a Material Adverse Effect, and
Parkvale and the Bank shall have received a certificate to that effect signed by
the President of Advance and Advance Savings.
(b) All permits, consents, waivers, clearances, approvals and
authorizations of all regulatory or governmental authorities or third parties
which are necessary in connection with the consummation of the Merger shall have
been obtained, and none of such permits, consents, waivers, clearances,
approvals and authorizations shall contain any non-standard term or condition
which would materially impair the value of Advance and the Advance Subsidiaries
to Parkvale and the Bank.
(c) Advance and Advance Savings shall have furnished Parkvale and the
Bank with such certificates of its officers or others and such other documents
to evidence fulfillment of the conditions set forth in this Section 5.02 as
Parkvale and the Bank may reasonably request.
5.03 Conditions to the Obligations of Advance and Advance Savings Under
this Agreement. The obligations of Advance and Advance Savings under this
Agreement shall be further subject to the satisfaction, at or prior to the
Effective Time, of the following conditions, any one or more of which may be
waived by Advance and Advance Savings to the extent permitted by law:
(a) Each of the obligations of Parkvale and the Bank required to be
performed by them at or prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of Parkvale and the Bank
contained in this Agreement shall have been true and correct as of the date
hereof and as of the Effective Time as though made at and as of the Effective
Time, except (i) as to any representation or warranty which specifically relates
to an earlier date or (ii) where the facts which caused the failure of any
representation or warranty to be so true and correct would not, either
individually or in the aggregate, constitute a Material Adverse Effect, and
Advance and Advance Savings shall have received a certificate to that effect
signed by the President and Chief Executive Officer of Parkvale and the Bank.
(b) Parkvale and the Bank shall have furnished Advance and Advance
Savings with such certificates of its officers or others and such other
documents to evidence fulfillment of the conditions set forth in this Section
5.03 as Advance and Advance Savings may reasonably request.
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(c) Parkvale shall provide confirmation to Advance that an amount equal
to the Aggregate Merger Consideration in immediately available funds has been
deposited by Parkvale with the Exchange Agent.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER, ETC.
6.01 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of this Agreement and the
Agreement of Merger by the stockholders of Advance:
(a) by mutual written consent of the parties hereto;
(b) by Parkvale, the Bank, Advance or Advance Savings (i) if the
Effective Time shall not have occurred on or prior to June 30, 2005, or (ii) if
a vote of the stockholders of Advance is taken and such stockholders fail to
approve this Agreement and the Agreement of Merger at the meeting of
stockholders (or any adjournment thereof) of Advance contemplated by Section
4.07 hereof; unless the failure of such occurrence shall be due to the failure
of the party seeking to terminate this Agreement to perform or observe its
agreements in all material respects set forth herein to be performed or observed
by such party at or before the Effective Time;
(c) by Parkvale or Advance upon written notice to the other 30 or more
days after the date upon which any application for a regulatory or governmental
approval necessary to consummate the Merger and the other transactions
contemplated hereby shall have been denied or withdrawn at the request or
recommendation of the applicable regulatory agency or governmental authority,
unless within such 30-day period a petition for rehearing or an amended
application is filed or noticed, or 30 or more days after any petition for
rehearing or amended application is denied;
(d) by Parkvale or the Bank in writing if Advance or Advance Savings
has, or by Advance or Advance Savings in writing if Parkvale or the Bank has,
breached (i) any covenant or undertaking contained herein or in the Agreement of
Merger, or (ii) any representation or warranty contained herein, which breach
would have a Material Adverse Effect, in any case if such breach has not been
cured by the earlier of 30 days after the date on which written notice of such
breach is given to the party committing such breach or the Effective Time;
(e) by Parkvale or Advance in writing, if any of the applications for
prior approval referred to in Section 4.06 hereof are denied or are approved
contingent upon the satisfaction of any non-standard condition or requirement
which, in the reasonable opinion of the Board of Directors of Parkvale, would
materially impair the value of Advance and Advance Savings taken as a whole to
Parkvale, and the time period for appeals and requests for reconsideration has
run; or
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(f) by Parkvale in the event of a Termination Event (as defined in
Section 7.01(c) hereof).
6.02 Effect of Termination. In the event of termination of this
Agreement by Parkvale, the Bank, Advance or Advance Savings as provided above,
this Agreement shall forthwith become void (other than Sections 4.05(b) and 7.01
hereof, which shall remain in full force and effect) and there shall be no
further liability on the part of the parties or their respective officers or
directors except for the liability of the parties under Sections 4.05(b) and
7.01 hereof and except for liability for any breach of this Agreement.
6.03 Amendment, Extension and Waiver. Subject to applicable law, at any
time prior to the consummation of the Merger, whether before or after approval
thereof by the stockholders of Advance, the parties may (a) amend this Agreement
and the Agreement of Merger, (b) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (c) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (d) waive compliance with any of the
agreements or conditions contained herein; provided, however, that after any
approval of the Merger by the stockholders of Advance, there may not be, without
further approval of such stockholders, any amendment or waiver of this Agreement
or the Agreement of Merger which modifies either the amount or the form of the
Merger Consideration to be delivered to stockholders of Advance. This Agreement
and the Agreement of Merger may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. Any agreement on the
part of a party hereto to any extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party, but such
waiver or failure to insist on strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
ARTICLE VII
MISCELLANEOUS
7.01 Expenses; Termination Fee.
(a) Subject to the provisions of Section 7.01(b) hereof, each party
hereto shall bear and pay all costs and expenses incurred by it in connection
with the transactions contemplated by this Agreement, including fees and
expenses of its own financial consultants, accountants and counsel, provided,
however, that in the event of a willful breach of any representation, warranty,
covenant or agreement contained in this Agreement, the non-breaching party may
pursue any remedy available at law or in equity to enforce its rights and shall
be paid by the breaching party for all damages, costs and expenses, including
without limitation legal, accounting, investment banking and printing expenses,
incurred or suffered by the non-breaching party in connection herewith or in the
enforcement of its rights hereunder.
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(b) Notwithstanding any provision in this Agreement to the contrary, in
order to induce Parkvale to enter into this Agreement and as a means of
compensating Parkvale for the substantial direct and indirect monetary
and other damages and costs incurred and to be incurred in connection
with this Agreement in the event the transactions contemplated hereby
do not occur as a result of a Termination Event (as defined herein),
Advance agrees to pay Parkvale, and Parkvale shall be entitled to
payment of, a fee (the "Fee") of $1.5 million upon the occurrence of a
Termination Event so long as the Termination Event occurs prior to a
Fee Termination Event (as defined herein). The parties hereto
acknowledge that the actual amount of such damages and costs would be
impracticable or extremely difficult to determine, and that the sum of
$1.5 million constitutes a reasonable estimate by the parties under the
circumstance existing as of the date of this Agreement of such damages
and costs. Such payment shall be made to Parkvale in immediately
available funds within five business days after the occurrence of a
Termination Event. A Fee Termination Event shall be the first to occur
of the following: (i) the Effective Time, (ii) 12 months after
termination of this Agreement in accordance with its terms following
the first occurrence of a Preliminary Termination Event (as defined
herein), (iii) termination of this Agreement in accordance with the
terms hereof prior to the occurrence of a Termination Event or a
Preliminary Termination Event (other than a termination of this
Agreement by Parkvale pursuant to Section 6.01(d) hereof as a result of
a willful breach of any representation, warranty, covenant or agreement
of Advance or Advance Savings) or (iv) 12 months after the termination
of this Agreement by Parkvale pursuant to Section 6.01(d) hereof as a
result of a willful breach of any representation, warranty, covenant or
agreement of Advance or Advance Savings.
(c) For purposes of this Agreement, a "Termination Event" shall mean
any of the following events:
(i) Advance or Advance Savings, without having received Parkvale's
prior written consent, shall have entered into an agreement to engage
in an Acquisition Transaction with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended ("Exchange Act"), and the rules and regulations thereunder),
other than Parkvale or any subsidiary of Parkvale or the Board of
Directors of Advance shall have recommended that the stockholders of
Advance approve or accept any Acquisition Transaction with any person
other than Parkvale or any subsidiary of Parkvale; or
(ii) any person, other than Parkvale, shall have acquired beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act) of or the right to acquire beneficial ownership, or any
"group" (as such term is defined in Section 13(d)(3) of the Exchange
Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, 25% or more of the aggregate voting
power represented by the outstanding Advance Common Stock.
(d) For purposes of this Agreement, a "Preliminary Termination Event"
shall mean any of the following events:
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(i) any person (other than Parkvale) shall have commenced (as such term
is defined in Rule 14d-2 under the Exchange Act), or shall have filed a
registration statement under the Securities Act of 1933, as amended
("Securities Act") with respect to, a tender offer or exchange offer to
purchase any shares of Advance Common Stock such that, upon
consummation of such offer, such person would own or control 10% or
more of Advance Common Stock outstanding (such an offer being referred
to herein as a "Tender Offer" and an "Exchange Offer," respectively,
regardless of whether the provisions of Regulations 14D or 14E under
the Exchange Act apply to such Tender Offer or Exchange Offer);
(ii) (A) the holders of Advance Common Stock shall not have approved
this Agreement at the meeting of such stockholders held for the purpose
of voting on this Agreement, (B) such meeting shall not have been held
or shall have been canceled prior to termination of the Agreement or
(C) Advance's Board of Directors shall have withdrawn or modified in a
manner adverse to Parkvale the recommendation of Advance's Board of
Directors with respect to the Agreement, in each case after any person
(other than Parkvale) shall have (x) made, or disclosed an intention to
make, a bona fide proposal to Advance or its stockholders to engage in
an Acquisition Transaction (and, in the case of clause (A) hereof,
which bona fide proposal has been made public by announcement or
written communication that is or becomes the subject of public
disclosure), (y) commenced a Tender Offer or filed a registration
statement under the Securities Act with respect to an Exchange Offer or
(z) filed an application or given notice, whether in draft or final
form, with the appropriate regulatory authorities for approval to
engage in an Acquisition Transaction; or
(iii) Advance or Advance Savings shall have breached any
representation, warranty, covenant or obligation contained in this
Agreement and such breach would entitle Parkvale to terminate this
Agreement under Section 6.01(d) hereof (without regard to the cure
period provided for therein unless such cure is promptly effected
without jeopardizing consummation of the Merger pursuant to the terms
of this Agreement) after any person (other than Parkvale) shall have
(x) made, or disclosed an intention to make, a bona fide proposal to
Advance or its stockholders to engage in an Acquisition Transaction,
(y) commenced a Tender Offer or filed a registration statement under
the Securities Act with respect to an Exchange Offer or (z) filed an
application or given notice, whether in draft or final form, with the
appropriate regulatory authorities for approval to engage in an
Acquisition Transaction.
(e) Advance shall promptly notify Parkvale in writing of the occurrence
of any Preliminary Termination Event or Termination Event.
7.02 Survival. The respective representations, warranties and covenants
of the parties to this Agreement shall not survive the Effective Time but shall
terminate as of the Effective Time, except for the provisions of Sections 1.07,
1.08, 4.12 and 7.01 hereof.
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7.03 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by overnight
express or mailed by prepaid registered or certified mail (return receipt
requested) or by cable, telegram or telex addressed as follows:
(a) If to Parkvale or the Bank, to:
Parkvale Financial Corporation
Parkvale Savings Bank
4220 William Penn Highway
Monroeville, Pennsylvania 15146-2774
Attn: Robert J. McCarthy, Jr.
President and Chief Executive Officer
Copy to:
Elias, Matz, Tiernan and Herrick L.L.P.
734 15th Street, N.W.
Washington, D.C. 20005
Attn: Gerald F. Heupel, Jr., Esq.
(b) If to Advance or Advance Savings, to:
Advance Financial Bancorp
Advance Financial Savings Bank
1015 Commerce Street
Wellsburg, West Virginia 26070
Attn: Stephen M. Gagliardi
President and Chief Executive Officer
Copy to:
Malizia Spidi & Fisch, PC
1100 New York Avenue, NW
Suite 340 West
Washington, D.C. 20005
Attn: Richard Fisch, Esq.
or such other address as shall be furnished in writing by any party, and any
such notice or communication shall be deemed to have been given as of the date
so mailed.
7.04 Parties in Interest. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party hereto
without the prior written consent of the other party and, except as provided in
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Section 4.12 hereof or as otherwise expressly provided herein, that nothing in
this Agreement is intended to confer, expressly or by implication, upon any
other person any rights or remedies under or by reason of this Agreement.
7.05 Complete Agreement. This Agreement and the Agreement of Merger,
including the documents and other writings referred to herein or therein or
delivered pursuant hereto or thereto, contain the entire agreement and
understanding of the parties with respect to their subject matter and shall
supersede all prior agreements and understandings between the parties, both
written and oral, with respect to such subject matter. There are no
restrictions, agreements, promises, representations, warranties, covenants or
undertakings between the parties other than those expressly set forth herein or
therein.
7.06 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
7.07 Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania, without giving effect to the principles of
conflicts of laws thereof.
7.08 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, Parkvale, the Bank, Advance and Advance Savings
have caused this Agreement to be executed by their duly authorized officers as
of the day and year first above written.
PARKVALE FINANCIAL CORPORATION
Attest:
/s/Erna A. Golota By: /s/Robert J. McCarthy, Jr.
- --------------------------- ---------------------------------------------
Erna A. Golota Robert J. McCarthy, Jr.
Corporate Secretary President and Chief Executive Officer
PARKVALE SAVINGS BANK
Attest:
/s/Erna A. Golota By: /s/Robert J. McCarthy, Jr.
- --------------------------- ---------------------------------------------
Erna A. Golota Robert J. McCarthy, Jr.
Corporate Secretary President and Chief Executive Officer
ADVANCE FINANCIAL BANCORP
Attest:
/s/Florence K. McAlpine By: /s/Stephen M. Gagliardi
- --------------------------- ---------------------------------------------
Florence K. McAlpine Stephen M. Gagliardi
Corporate Secretary President and Chief Executive Officer
ADVANCE FINANCIAL SAVINGS BANK
Attest:
/s/Florence K. McAlpine By: /s/Stephen M. Gagliardi
- --------------------------- ---------------------------------------------
Florence K. McAlpine Stephen M. Gagliardi
Corporate Secretary President and Chief Executive Officer
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APPENDIX B
[Letterhead of Keefe, Bruyette, & Woods, Inc.]
September 1, 2004
Board of Directors
Advance Financial Bancorp
1015 Commerce Street
Wellsburg, WV 26070
Dear Board Members:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
Advance Financial Bancorp ("Advance"), of the consideration to be paid to
Advance stockholders in the merger (the "Merger") between Advance and Parkvale
Financial Corporation ("Parkvale"). We have not been requested to opine as to,
and our opinion does not in any manner address, Advance's underlying business
decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated August xx, 2004, by and
among Advance and Parkvale (the "Agreement"), at the effective time of the
Merger, Parkvale will acquire all of Advance's issued and outstanding shares of
common stock. Advance stockholders will receive $26.00 in cash per share.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, savings institutions and bank and savings
institution holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by Advance, including (i) the Agreement (ii) Annual Reports
for the years ended June 30, 2001, 2002 and 2003 (iii) Proxy Statements for the
years ended June 30, 2002 and 2003 (iv) unaudited financial statements for the
year end June 30, 2004 (v) and other information we deemed relevant. We also
discussed with senior management and directors of Advance, the current position
and prospective outlook for Advance. We reviewed financial and stock market data
of other savings institutions and the financial and structural terms of several
other recent transactions involving mergers and acquisitions of savings
institutions or proposed changes of control of comparably situated companies.
For Parkvale, we reviewed (i) Annual Reports for the years ended June 30, 2001,
2002 and 2003, (ii) earnings release for the year end June 30, 2004 (iii) and
other information
B-1
we deemed relevant. We also discussed with members of the senior management team
of Parkvale, the current position and prospective outlook for Parkvale.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by Advance and
the material otherwise made available to us, including information from
published sources, and we have not made any independent effort to verify such
data. With respect to the financial information, including forecasts and asset
valuations we received from Advance, we assumed (with your consent) that they
had been reasonably prepared reflecting the best currently available estimates
and judgment of Advance's management. In addition, we have not made or obtained
any independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of Advance. We have further relied on
the assurances of management of Advance that they are not aware of any facts
that would make such information inaccurate or misleading. We express no opinion
on matters of a legal, regulatory, tax or accounting nature or the ability of
the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to Parkvale or the ability to consummate the Merger. Our opinion
is based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to Advance in connection with the Merger and will receive a fee for such
services. In addition, Advance has agreed to indemnify us for certain
liabilities arising out of our engagement by Advance in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be paid by Parkvale in the
Merger is fair, from a financial point of view, to the stockholders of Advance.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of Advance used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of Advance in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/Keefe, Bruyette, & Woods, Inc.
Keefe, Bruyette, & Woods, Inc.
B-2
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, then, either a constituent corporation, before the
effective date of the merger or consolidation, or the surviving corporation or
resulting corporation, within ten days thereafter, shall notify each of the
holders of any class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in such
notice a copy of this section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder
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entitled to appraisal rights may, within 20 days after the date of mailing of
such notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of such holder's shares.
If such notice did not notify stockholders of the effective date of the merger
or consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation notifying
each of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date of the
merger or consolidation or (ii) the surviving or resulting corporation shall
send such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more than
20 days following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
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resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k)From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the
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stock (except dividends or other distributions payable to stockholders of record
at a date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
such stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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ADVANCE FINANCIAL BANCORP
1015 Commerce Street
Wellsburg, West Virginia 26070
(304) 737-3531
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER __, 2004
- --------------------------------------------------------------------------------
The undersigned hereby appoints the Board of Directors of Advance
Financial Bancorp ("Advance"), or its designee, with full powers of
substitution, to act as attorneys and proxies for the undersigned, to vote all
shares of common stock of Advance which the undersigned is entitled to vote at
the Annual Meeting of Stockholders (the "Meeting"), to be held at
_______________________, __________________, Wintersville, Ohio, 26070 on
____________, December __, 2004, at __:__ _.m., Eastern Time, and at any and all
adjournments thereof, as follows:
FOR AGAINST ABSTAIN
--- ---------------
1. Proposal to approve and adopt an
agreement and plan of reorganization, dated
September 1, 2004, by and among Parkvale
Financial Corporation, Parkvale Savings Bank,
Advance Financial Bancorp, and Advance Financial
Savings Bank pursuant to which, among other things,
(i) a newly-formed subsidiary of Parkvale will
merge with and into Advance and (ii) upon
consummation of the merger, each outstanding share
of Advance common stock (other than certain shares
held by Advance or Parkvale) will be converted into
the right to receive $26.00 in cash, without interest. [ ] [ ] [ ]
2. The election of directors as nominees listed
below (except as marked to the contrary): [ ] [ ] [ ]
Kelly M. Bethel
William E. Watson
Frank Gary Young
(Instruction: to withhold authority to vote
for any individual nominee, write that nominee's
name on the space provided below)
---------------------------------------------------------------------------
3. The ratification of the appointment of S.R.
Snodgrass, A.C., as independent accountants of the
Company for the fiscal year ending June 30, 2005. [ ] [ ] [ ]
The Board of Directors recommends a vote "FOR" the above propositions.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
SIGNED PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elects to vote at the Meeting,
or at any adjournments thereof, and after notification to the Secretary of
Advance at the Meeting of the stockholder's decision to terminate this proxy,
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect. The undersigned may also revoke this proxy by filing a
subsequently dated proxy or by notifying the Secretary of Advance of his or her
decision to terminate this proxy.
The undersigned acknowledges receipt from Advance prior to the
execution of this proxy of a Notice of Annual Meeting, Proxy Statement dated
November __, 2004 and an Annual Report.
Please check here if you
Dated: _________________, 2004 plan to attend the Meeting.
- ------------------------------- --------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
- ------------------------------- --------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
Please sign exactly as your name appears on this form of proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
- --------------------------------------------------------------------------------
ADVANCE FINANCIAL BANCORP
December __, 2004
Dear ESOP Participant:
In connection with the Annual Meeting of Stockholders of Advance
Financial Bancorp (the "Company"), you may direct the voting of the shares of
Common Stock of the Company held by the Advance Financial Savings Bank Employee
Stock Ownership Plan and Trust ("ESOP") allocated to your ESOP account.
Unallocated shares in the ESOP and allocated shares for which voting
instructions are not received will be voted by the ESOP Trustee in accordance
with their fiduciary capacity.
We are forwarding to you the attached Proxy Statement dated December
__, 2004, and the Vote Authorization Form, provided for the purpose of conveying
your voting instructions to the ESOP Trustee.
At this time, in order to direct the voting of shares allocated to your
account under the ESOP, you must fill out and sign the enclosed Vote
Authorization Form and return it to the ESOP Trustee in the accompanying
envelope. Your votes will be tallied and the ESOP Trustee will vote your
allocated shares in the ESOP Trust based upon your directions received in a
timely manner.
Sincerely,
ESOP Trustee
VOTE AUTHORIZATION FORM
I, the undersigned, understand that the ESOP Trustee is the holder of
record and custodian of all shares attributable to me of Advance Financial
Bancorp (the "Company") Common Stock under the Advance Financial Savings Bank
Employee Stock Ownership Plan and Trust. Further, I understand that my voting
instructions are solicited on behalf of the ESOP Trustee for the Company's
Special Meeting of Stockholders to be held on December __, 2004.
Accordingly, you are to vote all shares attributable to me as follows:
FOR AGAINST ABSTAIN
--- ---------------
(1) Proposal to approve and adopt an
agreement and plan of reorganization, dated
September 1, 2004, by and among Parkvale
Financial Corporation, Parkvale Savings Bank,
Advance Financial Bancorp and Advance
Financial Savings Bank pursuant to which, among
other things, (i) a newly-formed subsidiary of Parkvale
will merge with and into Advance and (ii) upon
consummation of the merger, each outstanding
share of Advance common stock (other than
certain shares held by Advance or Parkvale)
will be converted into the right to receive $26.00
in cash, without interest. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE ABOVE PROPOSAL
The ESOP Trustee is hereby authorized to vote any shares attributable
to me in his or her trust capacities as indicated above. I understand that if I
sign this form without indicating specific instructions, shares attributable to
me will be voted FOR the listed proposals.
___________________ __________________________
Date Signature
Please date, sign and return this form in the enclosed envelope.